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Wade, Treynor, Sharpe, efficient frontier, risk adjusted return. All there.Might be worth noting that I took the CFP course work in 2000-2003 - I suppose it's possible it has been supplemented since then.Kay
Wade and Kay --The CFP "investment training" is anti-fiduciary! Not just irrelevant, but instead mis-trains planners to divert clients from pursuit of best prospects for their futures, to approaches more favorable for the financial industry and academics.Wade, I can't resist your concluding reference to the Treynor ratio. A while ago I scoured the two versions of the CFP exam offered at the CFP Board website, looking for tests in comparing investments and identifying the "best" in probabilities for future results. The only one I could find presented four investments -- and scored as correct the answer choosing the investment with the highest Treynor ratio! I then compared the four for a simple plan, and found that the so-called "correct" answer rejected an investment with 90% goal-meeting probability in favor of one offering 50%.It's really scandalous that those CFP Board people are spending their time telling the public they are training "fiduciaries" and lobbying for the fiduciary standard instead of correcting the anti-fiduciary nature of their investment training. They are a terrible danger to all CFPs as well as the public.Dick Purcell
Wade and Kay --Leading CFPs are so far beyond the CFP investment training's mis-focus on the single-year abstractions of MPT. But the CFP Board continues to guide 200 schools in filling the heads of waves of new CFPs with the MPT diversion.It certainly is not fiduciary to divert client attention to the individual year, where she cannot see what's best or worst in prospects for her future, and also cannot see the long-term cost of excessive fees.Isn't this a threat to the profession, to all CFPs? Why do leading CFPs let it continue?Dick Purcell
Thanks to both of you.Planners do need some basic understanding of MPT. Efficient frontiers, risk-adjusted returns, and so on are important to know about. In fact, I used the concept of efficient frontiers applied to a long-term retirement horizon to investment safe withdrawal rates and asset allocation:http://www.fpanet.org/journal/CurrentIssue/TableofContents/CapitalMarketExpectations/But for long-term planning purposes, the general framework should be rather different from basic MPT. As Dick suggests, the investment strategy that maximizes the single-period Treynor ratio may not be the one that provides the best opportunity to reach one's financial goals. In the end, meeting goals matters more than maximizing the Treynor ratio.
Wade I’ll weigh in with even more detail. This is just as introduction only, not ego: efmoody.com/resume.htmlSee “blog” at efmoody.com/gripes.htmlFinished “Financial Planning Fiduciary Standards under Dodd Frank” (2012) Now on Amazon This is the complement to two video courses approved by the California State Bar for Continuing legal EducationFiduciary Standards Dodd Frank: investmentsFiduciary Standards Dodd Frank: Insurance and AnnuitiesSee also efmoody.com/contents.pdfefmoody.com/Foreword.pdfFor over 20 years I have tried to get the various organizations and regulatory entities (are there any?) to adhere to even suitability standards. Not even close. I was a CFP from 1984 to 2010 where I simply terminated the ‘designation’. I have taught most financial planning, investment and insurance continuing education courses and on and onBottom line- the fundamentals of investing have never been taught to a broker. It is simply not required for testing. No diversification, correlation, standard deviation, retirement planning, risk of loss and more. Actually, CFPs are not taught much either. I got mine in 1984 and said, “I don’t think I know that much” (I was right). Insurance is an absolute minefield of exponentially increasingly complex products that are not addressed (Ca does not required insight on product illustrations. Nor even longevity tables) Consumers are universally lost. The CFP does require one to learn the risk of loss. No software program or simplistic retirement analysis can ever present any type of return without numerically stating how much one can lose if the volatility does not conform to the simplistic Bayesian curve. And so on. Some of this might look pretty impressive- save for the fact that no one cares. NAPFA, CFP Board of Standards, CPA society et al have violated California laws for years. The CA Department of Insurance told them to get licensed if the wanted to offer comprehensive fee planning. Not one did and the CFP Board actually told members to keep violating the law but to keep quiet about it. I lost that oneFought with the NASD, FINRA, SEC (directly with Schapiro) to demand brokers get the necessary knowledge to protect consumers. Even to basic suitability standards. Not even close. Lost anotherTried to get the NASD, FINRA to get arbitrators trained to the fundamentals of investing as well since most arbitrations are not based on real world application. Lost another. Really went after the CFP Board to adhere to its own fiduciary standards at the Board level. Lots and lost of wasted ink. They sheltered a CFP who had agreed to pay a $300,000 settlement. He walked away scott free.Tried the Florida Dept of Financial Services. After years and years of diddling till they got to the guy- they then said too much time had passed to do anything (Unbelievable). My recent text covers what is needed for real life fiduciary knowledge. The DOL said that, while nice, they’d just wait for the subsequent claims to alter the industry. (Oy!!!) NASAA- nothing? Nor FINRA, SEC (though not necessarily unexpected)Wade- probably what I think I would like is to communicate with you directly. I spent most of my adult life trying to make a difference for consumers and maybe we can help each other. We are both trying to focus in the same direction and maybe something can workThanksErrold