Morningstar Advisor - August/September 2011 - 27

asset-market environments to those who
agree with Gross. Referencing a news report
that tallied U.S. national debt at $62 trillion,
a figure to which he added $38 trillion in
unfunded Medicaid costs, Gross said, " Unless
something is done, there's no doubt that
inflation and inflating is the legitimate solution
to the $100 trillion problem. "
And such a problem will inevitably have
to be dealt with, meaning interest rates can't
go much lower, Gross said. He observed
that stocks' surge has coincided with the
interest-rate plunge, meaning investments
in equities have come at the expense of those
in fixed-income securities in recent years.
" It has to be recognized by policymakers that
in order to reinvigorate the economy, you need
more than lower interest rates, " he said.
Berkowitz Takes a Stand
Bruce Berkowitz, founder of Fairholme Capital
Management, mastermind of Fairholme Fund's
FAIRX wildly successful run from 2000-09,
and outspoken advocate of distinguishing fund
performance through heavy concentration, took
the stage in part to explain just what has gone
so wrong. After winning Morningstar's
Domestic-Stock Manager of the Year award
three times in the previous decade, Berkowitz
has led Fairholme Fund to a dismal 2011.
The collapse is mostly a result of the fund's
allocation to financial-services companies.
While acknowledging that his move back
to financials was premature, Berkowitz said
anyone writing Fairholme off is naive.
Fink Advises Advisors
In his presentation, BlackRock chairman and
CEO Larry Fink touched on a variety of topics,
including short-term thinking in the investment
world, alternatives investing, and the role
of the government in the market recovery.
A major theme of Fink's conversation was the
shift in the financial-services industry to
move toward a " fiduciary standard " as opposed
to a " suitability standard. " One of the most
important improvements that the fiduciary
standard could bring to the industry is that
it would force intermediaries to think from their
clients' perspectives. Fink said that he didn't
believe that extensive regulatory pressure
would be needed to drive the industry's shift
toward adopting the fiduciary standard.
In fact, he said that he sees it heading in the
right direction on its own, albeit gradually.
Fink also offered some advice to advisors
based on his success with the BlackRock
franchise. Fink stressed the importance
of " client connectivity. " It's important that every
client feels important, regardless of their size
or location, he said. Fink noted that BlackRock
emphasizes establishing a local presence
in every international market it enters. He said
that the goal is to make sure that a client in
Korea or Brazil feels equal to a large U.S. client.
The Age of Reason
Closing the conference was David Laibson,
Harvard's Robert I. Goldman Professor
of Economics. As an authority in the realm of
behavioral finance, he addressed the hugely
ignored topic of cognitive decline among the
elderly, which can have enormous consequences
in their financial decision-making abilities.
Age is a greater hindrance to economic
rationality than is being low-income or having a
low education level. Laibson noted a startling
but compelling statistic-the likelihood
of developing dementia doubles with every five
years of age after age 60.
Laibson also provided some " nudges " to get
investors on board with planning:
r Make estate planning the default for
every 65-year-old.
r Establish regular checkups with clients.
r At the end of each checkup, schedule an
" appointment " for the next checkup.
r Encourage family involvement.
r For advisors, take action on the spot and
work through decisions immediately.
If You Missed It
Audio recordings of these sessions and more
are available at http://advisor.morningstar.com/
products/conference/micdownloads.asp
Next year's conference will be from June 20-22
at McCormick Place in Chicago.
MorningstarAdvisor.com 27
Bill Gross, CEO, PIMCO
http://advisor.morningstar.com/products/conference/micdownloads.asp http://advisor.morningstar.com/products/conference/micdownloads.asp http://www.MorningstarAdvisor.com
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