RJ and Makay

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After two years of stagnant or shrinking revenues, the 50 largest independent broker-dealers reported a rebound in their annual revenues last year, according to Financial Planning magazine.  A robust stock market and strong demand for mutual funds, annuities and other products saw a median increase of 13.2% in 2010 revenues. 13 of the top 50 firms posted year-to-year revenue growth of over 20%.

Meanwhile, in the past few months, the absolute return asset class has been back in the news. Putnam investments launched four of these funds in January 2009, and according to its survey of 265 advisors, 59% said they were at least somewhat likely to recommend absolute return funds to clients, while one in five said they were “very likely.”  However, these funds can lead to confusion. It’s not just the phrase “absolute return” that is the cause, but it’s also how these funds are presented by companies.

These investments are supposed to always produce positive results that are not tied to the broader markets. However, in 2008 and part of 2009, much of this asset class did not post positive returns. Some financial professionals dismiss this as being off base because, with absolute return funds, it is important to think in broader terms, rather than absolute. For example, these funds did not lose nearly as much as the S&P 500 during the economic crisis. Also, a broader timeline needs to be used to obtain a meaningful view of their performance, which means that if the funds lose money one year, then look at the three-year returns.

When it comes to financial investment, an old lesson serves to remind us well: education, education, education. According to a recent survey from Northwestern Mutual, it appears that people don’t have a firm understanding of even simple financial concepts.  In fact, the results, gathered from an online questionnaire answered by 1,664 people ages 25 to 65, suggest that Americans’ financial literacy is no better than it was in 2006. The study, entitled “Financial Matters” shows that two out of three respondents (69%) would receive a failing grade on a quiz about financial concepts and products.

Fortunately, people appear interested in learning more. Almost 8 in 10 respondents gave a 7 or above on a scale of one to 10 when asked to rank the importance of understanding their own personal finances.