Stephen Horan, Ph.D., CFA, CIPM, CAIA

Personal Details

Bio

I lead the Credentialing Division of CFA Institute, a global association of 160,000 investment professionals promoting the highest standards of ethics, education, and excellence for the ultimate benefit of society. I provide vision and leadership for a 100-member global team delivering over 350,000 exams annually, including the CFA Program, CIPM Program, and CFA Institute Investment Foundations Program.

My career spans 25 years of experience as a practitioner, educator, and thought leader. I've authored or co-authored dozens of articles and books, received numerous research grants, and been awarded various honors, including the prestigious 2012 Graham and Dodd Readers’ Choice Award. As a former columnist for The Financial Times, I am frequently cited in the media, including The Wall Street Journal, The New York Times, CNBC, Investment News, Money Magazine, and The South China Morning Post. I believe that an industry populated with well-educated, ethical professionals leads to an environment of trust that ultimately serves to protect investors. I also believe that a strong strategic vision and leadership framework is critical for leading highly effective teams.

Specialties: Tax-efficient Investing

Retirement Planning

Portfolio Management

Equity Valuation

Soft Dollar Brokerage

Individual Investors

Derivative Securities

Current position (1)

Managing Director, Credentialing

CFA Institute

Presentations

Presentations (12)

The Impact of the Family Business for the High Net Worth Client Portfolio

The role of a family business in wealth creation for high net worth families is well known. Less well understood is the role it plays in wealth management for these same families. The unique risk and return profile of a family business influences portfolio management in similar but decidedly different ways than human capital does for the mass affluent client. This presentation creates a framework for analyzing the role of the family business in an intelligible and intuitive way that clients can understand and wealth managers can implement.

The Value of Value Investing

a. Value investing has its roots in the work of Graham and Dodd. But value is often in the eye of the beholder. This presentation highlights the many ways in which investors define value, how it varies over time, and how it compares to growth investing. It quantifies the size of the value investing opportunity as well as compares and contrasts the many ways to measure value. It also describes some of the unique market, cognitive, emotional, and investment constraint obstacles to implementing a successful value investing program.

Tax-Efficient Draw Downs in Retirement

Conventional wisdom suggests retirees should sequence withdrawals from retirement accounts in a particular order to minimize taxes. This session challenges that advice by leveraging the economics of the risk-return characteristics of various tax structures and provides insights into pre-retirement asset allocation, asset location and importantly retirement drawdown. Learn:
• How the government’s interest in different taxable structures affects an investor’s risk-return profile
• What the economics of different retirement tax structures imply for pre-retirement asset allocation and asset location
• How to use the available tax structures to keep taxes low throughout the retirement drawdown phase that challenges conventional wisdom

Are You Ready for The Robo Advisors?

Warren Buffett often borrows the wisdom of Canadian hockey great, Wayne Gretsky, who says, “I skate to where the puck is going to be, not to where it has been”. Demographics and technology will fundamentally change the wealth management and private banking landscape and will be the driving forces that will shape the clients with whom we work and how we work with them. Advisers that respond to changing client profiles by focusing on relationship development, building analytical frameworks, emphasizing retirement solutions and interacting with clients digitally will be well-positioned for those changes.

What Can Wealth Managers Learn from Pension Fund Managers?

This session develops a comprehensive life balance sheet framework to construct customized portfolios that meet clients’ needs. It takes a comprehensive view of explicit and implied assets and liabilities, and translates them into a portfolio construction framework that builds customized portfolios to meet clients’ unique needs. Particular attention will be paid to the role an investor’s funding status (i.e., assets in relation to investment goals) and human capital plays in managing assets in relation to liability.

What Every Wealth Manager Needs to Know About Performance Evaluation

Money chases returns. Investor pile into equity funds at the tail end of bull markets and leave on the tail end of bear markets. Similarly, managers that log high investment returns attract the most capital in later periods despite the lack of positive return persistence. Choose your investment managers smarter. Know how to measure performance and attribute it to the proper causes. From benchmark selection, to traditional performance measures, to recent advances in the importance of asset allocation (does it really explain 93% of performance?), this session will give wealth managers the tools essential to evaluating performance.

Soft Dollar Brokerage: Fact and Fantasy

In a typical soft dollar arrangement, a securities broker provides an institutional portfolio manager with credits to buy research from independent vendors in consideration for the manager’s promise to send the broker premium commission business when trading his portfolio securities. Because portfolio investors implicitly pay for brokerage, critics argue soft dollars reflect a breach of loyalty in which the manager unjustly enriches himself by shifting to investors the research bill he should pay out of his own pocket. We hypothesize, to the contrary, that by paying the manager’s research bill up front the broker posts a quality-assuring performance bond that efficiently subsidizes the manager’s investment research. Our database of private money managers shows premium commissions are positively related to risk-adjusted performance, suggesting soft dollars benefit investors. Premium commissions are also positively related to management fees, suggesting soft dollars can be beneficial.

The Role of Human Capital of in Constructing Private Client Portfolios

The single most value asset for most investors is the value associated with their earnings. As a large, undiversified, and illiquid asset it dramatically influences how the remainder of a client’s portfolio should be constructed. This presentation outlines the major characteristics of an investor’s human capital, demonstrates its profound impact on optimal portfolio construction, and outlines methods for wealth managers to create customized portfolios in this profound context.

The Real Importance of Asset Allocation

Brinson, Hood, and Beebower have decidedly demonstrated that asset allocation accounts for 90% of investment performance. Or have they? This presentation interprets the iconic work on the importance of asset allocation in light of more recent work on performance attribution and shed light on the question of the real importance of asset allocation.

Manager Search and Selection: Moving Beyond the Numbers

a. Measuring portfolio performance on an after-tax basis is a challenging matter. Whether using simple or complex models, one implicitly or explicitly makes certain assumptions about a taxable investor’s time horizon and capital gains recognition behavior. Dr. Horan integrates the after-tax performance measurement literature with recent advances in after-tax portfolio valuation. He implements a variation of David Stein’s full cost equivalent model using after-tax valuation techniques. The approach has several advantages. It can be applied relatively easily without sacrificing precision; accounts for the impact of taxes on portfolio risk; and can be used to develop a customized after-tax benchmark.

Two Key Principles for Tax-Efficient Investing

Understanding the intricacies of a specific country’s tax code provides little insight into the economic implications of taxes and how they impact risk, return, and investment strategy. Rather than become experts in local tax codes, wealth managers should understand the economic principles of taxation that apply globally to avoid making decisions that may be tax wise but pound foolish. Asset allocation is profoundly influenced by at least two under-appreciated concepts. First, tax-deferred accounts (e.g., 401(k)) are like partnerships in which the investor owns (1 - tn) of the partnership principal and the government owns the remainder, where tn is the marginal tax rate when the funds are withdrawn. Second, the government shares in both the return and risk of assets held in taxable accounts. The economic implications of taxation are a critical foundation for incorporating taxes in wealth management.

Sustainable Retirement Withdrawal Policies

Wealth accumulation is fundamentally different from wealth decumulation. This presentation highlights the radically different role that risk plays is these two environments and the implications for a sustainable withdrawal policy.