The Journal of Financial Planning's Research Showcase - Part 2

Title: Tax Loss Harvesting: Check Your Frequency
Author: David Blanchette

Description: Tax loss harvesting (TLH) is a relatively well-known strategy that has the potential to increase expected risk-adjusted after-tax returns for a household (i.e., generate “tax alpha”). This research explores how harvesting frequency affects loss realization across different market return environments, with an additional focus on the portfolio implications of different approaches as well as the potential benefits of a TLH strategy using sector ETFs.

Learning Objectives:
1. Overview wash sales rules and provide information about how they have the potential to limit loss realization and impact tracking error
2. Provide guidance on how harvesting frequency affects loss realization across different market return environments and review how different approaches can impact the risk and return of a portfolio.
3. Explore the potential benefits of such a strategy using sector ETFs that is less affected by wash sale rules.

Title: Evaluating the Impact of Emergency Savings on Mental, Behavioral, and Future Goal Outcomes
Author: Tim Todd

Description: This presentation empirically explores the conventional wisdom in financial planning about emergency savings and its impact on mental, behavioral, and future goal outcomes. This research demonstrates that emergency savings has additional effects on the financial planning process other than just providing a safety net for unexpected income shocks or expenses. These findings are important for financial planners in knowing the import and effect of the presence of emergency savings in a financial plan.

Learning Objectives:
1. Explain the conventional wisdom and theoretical underpinnings for the importance of emergency savings in the financial planning process.
2. Evaluate the different impact emergency savings can have on financial planning dimensions, such as financial anxiety and equity allocation.
3. Explain how these empirical findings surrounding emergency savings can be implemented in the financial planning process.

Title: Professional Financial Advice and Investor Behavior During the COVID-19 Pandemic
Author: Zhikun Liu

Description: Using account-level administrative data on over five million defined contribution retirement plan participants, this study evaluated the different reactions (by participant type) to the extreme market volatility caused by the COVID-19 pandemic during the first quarter of 2020. The results provide evidence that participants who receive professional advice through a managed account were more likely to engage (using call centers or website tools) with their retirement provider but less likely to trade following the engagements. This study also provides insights into how financial planners can provide value through behavioral coaching and how retirement plan feature designs can improve participants' welfare by behavioral nudging.

Learning Objectives:
1. Overview of the DC (Defined Contribution) retirement plan participants' engagement and trading activities during the unprecedented market volatility (first quarter of 2020) caused by the COVID-19 pandemic.
2. Explore the relationship between trading activity and advice-seeking behavior, and compare the behavioral differences among DIY (self-directed) investors, TDF investors, and managed accounts investors.
3. Provide evidence that advisors or financial planners can provide value through behavioral coaching and that individually personalized, professionally managed portfolios increase participant engagement and reduce reactionary trading.