“Policy-Based Financial Planning: Decision Rules for a Changing World” by Dave Yeske, managing director, and Elisa Buie, CEO of Yeske Buie. Based on their 2011 paper, Yeske and Buie provided a six-step process for creating effective financial planning policies for each client:

1. Engage in the discovery process in which the financial planner learns about the client’s personal history, values, beliefs, goals and resources.
2. Identify planning areas and best practices required by this client.
3. Combine goals with best practices to create a proposed policy.
4. Test the policy: Is this a good policy?
5. Test-drive the policy with the client and listen to their feedback.
6. Conduct periodic reviews and updates checking for changing circumstances.

“Advising the Behavioral Investor: Lessons from the Real World” by Gregg Fisher, founder of Gerstein Fisher. “While he cited common investor mistakes such as failing to rebalance, chasing yield and underestimating the impact of inflation, he also explored the less talked about failure to consider a client’s income stream as an asset; one that requires at least as much—if not more—offsetting diversification than their other holdings.”

“His unconventional approach is also evident in the considerable body of research he cited debunking the advantage of dollar-cost averaging versus lump-sum investments. Fisher suggested that “sub-optimal” investment strategies can also be the best investment strategies. “Instead of debating [whether MPT or behavioral finance strategies are better], an investment advisor should borrow from both. The result will be an investment portfolio and strategy that may be suboptimal from an MPT standpoint, but may be the right approach for the investors. In other words, sometimes ‘the right portfolio’ isn’t the right portfolio.”

He used an example that shows how “based on information about a client, as well as experience with other clients in similar situations, an advisor might conclude that this client would panic and sell equities at a major loss at the market bottom. As a financial advisor, the best case may be to recommend that this investor pay off their mortgage and student loans before investing in risky assets. Again, no financial optimizer would recommend this strategy.”

“Post-Crisis Investor Behavior: Experience Matters,” by Joseph Rizzi, president of Macro Strategies LLC. “The financial crisis of 2008-2009 with its 50% drop in stock market value is seared into the collective investor memory—especially generation Y investors,” he wrote. “[Younger] investors are more focused on reacting to macro developments than asset fundamentals. The shift from ‘return on capital’ to ‘return of capital’ underlies the move away from equities into perceived lower risk fixed income by certain investor groups.”

See also this interview with Harry Markowitz

* I haven’t read this book yet. I’m summarizing this book review. I do this so when I want to know more about this topic and find this post I know which book I should go to for more.