PORTFOLIOS FEELING FED CHANGES: A recent CFA Institute study found that interest rate changes enacted by the Federal Reserve could affect clients’ investment portfolios.

The study, “Is Fed Policy Still Relevant for Investors?” — conducted by researchers from the CFA Institute, Northern Illinois University, the University of Richmond and Texas Tech University — found a strong connection between U.S. monetary policy and global stock market returns.

During times of restrictive monetary policy — or rising interest rates — the markets performed poorly, resulting in lower-than-average returns and higher-than-average risk. Conversely, periods of expansive monetary policy generally coincide with strong stock performance, including higher-than-average returns and less risk, according to the report.

“While Americans closely follow the impact of rising and falling interest rates on their mortgages, they should also consider the potential effect on their portfolios,” said Bob Johnson, Ph.D., CFA, executive vice president at the CFA Institute.

Stocks averaged returns of 21.86 percent during periods of expansive monetary policy, versus 2.84 percent when Fed policy on interest rates was restrictive, according to the study — though initial analysis suggests that the relationship between the two has lessened throughout the years.


BUOYED BY MARKET, 401(K) BALANCES SURGED IN 2003: The market seems to have been generous to many 401(k) participants in 2003 — the average 401(k) account grew by 29.1 percent last year, the Employee Benefit Research Institute and the Investment Company Institute reported.

The average account balance for those who have maintained accounts  since 1999 was $76,809 at the end of 2003, up 17.1 percent from the 1999 figure of $65,572, for an annual increase of about 4 percent, according to the EBRI/ICI 401(k) database, which tracks the behavior of about 15 million active 401(k) participants holding $776 billion in assets as of Dec. 31, 2003.

The EBRI and the ICI said that workers in their 20s saw their average account balance jump 138.7 percent between the end of 1999 and the end of 2003, largely because new contributions overwhelmed market activity. In contrast, the average account balance for workers in their 60s with 30 years of tenure declined 15.5 percent because market performance and withdrawals swamped new contributions.

About two-thirds of 401(k) account assets were invested in stocks at the end of 2003, the report said. At year’s end, 45 percent of participants’ assets were invested in equity funds (including mutual funds and other pooled investments), 16 percent in company stock, 9 percent in balanced funds, 10 percent in bond funds, 13 percent in guaranteed investment contracts and other stable value funds, and 5 percent in money funds.


STUDY SAYS FIRMS WITH CFPS ON STAFF MADE MORE: Having a Certified Financial Planner certification may have a positive effect on firm revenue, according to a study by the Financial Planning Association.

Firms with a CFP certificant on staff had over $300,000 more in revenue than firms with no CFP professionals on staff, and CFP-certified owners had over 50 percent greater pre-tax income in their practices than their non-CFP-certified counterparts, according to the 2004 FPA Financial Performance Study, sponsored by SEI Investments and produced by Moss Adams LLP. Participants in the study included 638 financial advisory firms with total revenues of $471 million reported in 2003.

“This year’s results call attention to the importance of continuing education within the financial planning arena,” said Mark Tibergien of Moss Adams.

According to the report, assets under management or advice increased 34 percent, with half of the growth attributed to portfolio performance and half to new assets. More than 20 percent of participants had $1 million or more in firm revenue, double the figure from five years ago. Single-professional firms increased revenue by 21 percent, but suffered a notable decline in operational efficiency, the FPA said. While more money is being made, much of it is going toward rapidly increasing expenses.

In addition, survey results noted that the gap between the top 25 percent of firms and the other 75 percent of firms is widening. Owners in the top 25 percent are taking home over $250,000 more per year than their peers. The report noted that firms that are more proactive in seeking new clients tend to be among the top 25 percent.

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