From the Editor

This issue contains Issue 3 of Volume 25 of Financial Services Review (FSR). I would
like to thank the board and members of the Academy of Financial Services for their
continued support. I continue to work in broadening the scope of articles, while still focusing
on individual financial management and personal financial planning. I encourage authors to
reach out when discussing implications of their findings in a more comprehensive way. As
such, all articles in the Journal more appropriately relate to financial planning issues.

The lead article Strategic complexity in investment management fee disclosures” is
coauthored by Leslie A. Muller at Grand Valley State University and John Turner at Pension
Policy Center. This paper develops a measure of complexity in fee disclosures. Their data
validates the measure of complexity and indicates that people who are more financially
literate are better able to understand complex fee disclosures, but that even people with the
presumption of a relatively high degree of financial literacy are not all able to decipher
complex fee disclosures.

The second article “The Evidence on Target-date Mutual Funds” is authored by Sandeep
Singh at College at Brockport, SUNY. The author conducts a survey of the theory and
recommendations on TDF glide paths which confirms a trend towards focusing on meeting
retirement liabilities, rather than optimizing asset only portfolios. After a review of perfor-
mance evaluation metrics for TDFs, he shows that none of the available indexes possess all
seven characteristics of an ideal benchmark. He recommends that plan sponsors can provide
better outcomes by offering multiple risk profile TDFs, while researchers can focus on
improving glide path and benchmark design.

The third article, “Household Ratio Guidelines for the Amount of Investments” is coau-
thored by Sherman D. Hanna at Ohio State University and Kyoung Tae Kim at University
of Alabama. The authors investigate three investment ratios typically utilized in textbooks:
investments to net worth, investments to annual income, and investments to total assets.
Using the 2013 Survey of Consumer Finances they estimate regressions on respondent evaluation
of the adequacy of retirement income, among households with a non-retired head in the 2013
Survey of Consumer Finances. They find that the investments to total assets ratio has the strongest
relationship to adequacy, controlling for selected household characteristics and the investments to
net worth ratio (Capital Accumulation ratio) is inferior to the other two ratios.

The fourth article, The Behavior Heuristics Responsible for Formation and Liquidation of
Tax Holding Accounts” is coauthored by Matt Hurst and Monica Mendoza both at Stetson

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University. In this paper, the authors propose the tax liquidation hypothesis, a predictable
pattern of behavior regarding individuals’ decisions to create and subsequently to liquidate
‘Cash Holding’ accounts when facing tax liabilities. Previous research on tax related trading
has focused on minimizing the individual tax burden by holding winners and selling losers.
This behavior, described as “optimal tax trading” suggests that individuals should sell stocks
that have lost value in the short-term while holding onto stocks that have gained value until
the stocks can be sold at the preferential long-term capital gains rate. The authors propose
and test the tax liquidation hypothesis based on investor behavioral biases and the current tax
environment. They show that individual investors will hold “cash” accounts that are con-
sistent with their preferences for risk and return. They propose that having cash on hand and
liquidating for tax purposes are not mutually exclusive events and that these events can
coexist harmoniously.

The final article, “CAT Bonds: Risk Offsets with Diversification and High Returns” is
authored by Richard J. Kish at Lehigh University. The author investigates Catastrophe
bonds, a relatively new entry into the bond market, which are a form of reinsurance in which
insurance firms are able to offset the financial risks from both natural and man-made
catastrophes. The author’s analysis finds that CAT bonds have generated high returns, but
with the advantage of diversification when compared with similarly rated corporate debt.
Thus, he finds that CAT bonds are a viable investment option within a diversified portfolio.

I would like to send a special thank you to the many reviewers that have significantly
contributed to the quality of our journal by providing timely and thorough reviews of the
submissions to our journal. Thanks to those who make the journal possible, especially the
referees and contributing authors.

Please consider submission to the Financial Services Review and rely on the style
information provided to ease readability and streamline the review process. The Journal
welcomes articles over the range of areas that comprise personal financial planning. While
FSR articles are certainly diverse in terms of topic, data, and method, they are focused in
terms of motivation. FSR exists to produce research that addresses issues that matter to
individuals. I remain committed to the goal of making Financial Services Review the best
academic journal in individual financial management and personal financial planning.

Best regards
Stuart Michelson

Editor Financial Services Review

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