Joseph Smith, founder of JAS Financial Services LLC., is a Certified Public Accountant and a member of the National Association of Personal Finance Advisors. Source: JAS Financial Services LLC., http://www.jasfinancialllc.com/

Ever considered hiring a financial planner for your personal investments?
Financial planners are investment experts who can help you meet your long-term financial goals by helping you manage your nest-egg. But you may be wondering, why spend that money when you’re trying to save every penny possible? Who exactly are these financial planners, and what can they do for you? Can they be trusted? These are some of the most commonly asked questions, and Joseph Smith, the founder of JAS Financial Services LLC., based in Evanston, provided some answers.

1. Which type of investors benefit the most from using a financial planner?
Well, actually, most investors can benefit from financial planners but it really is broader than that, because it’s not just the investors. A lot of people don’t think of themselves as investors — sometimes when I deal with people, they say, “well, I don’t have any assets,” but they have an IRA [Individual Retirement Account] or they have a retirement plan, or more importantly, in some cases, some people don’t have any assets or investments – and that’s the problem. So I think everyone, whether they have nothing and are building it up, or they have everything and are trying to maximize the benefits for themselves, they can all benefit from financial planning. I view financial planning as a broad and encompassing step. It’s more than just investments.

2. What are some advantages of using a financial planner during challenging economic times?
The advantages are, one, financial planners can help people to recognize where they are financially, and two, present them with some alternatives or courses of action that could help them, and finally, help them take advantage of what’s out there to in order to achieve their goals or protect themselves from future losses.
Some people think they are in better shape than they really are; some have taken risks that they weren’t aware of; some are behind the eight ball; and some really aren’t going to recover. But at least knowing where they are in the short-term helps them to make important adjustments.

3. How often can a client expect to communicate with his/her planner, and how much input does the client have in making decisions?
The frequency of the communication depends on the nature of the engagement. If I’m working with a client that’s on an hourly basis, it’s strictly up to them. If it’s on a fixed-fee basis, clients find it more comfortable calling for advice and they are more receptive to my calls because they aren’t worried about the ticking clock. To me, the most important thing is the client and the client’s perception – what they want to achieve. There is an expanding research regarding investor behavior. Part of the planner’s job is to help the clients understand whether what they want to do is reasonable or not. Sometimes you can’t prevent somebody from making a decision that you think isn’t the right decision. But if you point out why it’s not, and you’re working with a client over a long period of a time, you have the opportunity to point out where they could modify their behavior in the future. It’s an on-going relationship and you have the opportunity to help educate the clients so that they can start to see why they should consider various alternatives.

4. How much would you say is a reasonable price range for hiring or retaining a financial planner?
Again, it depends on what the nature of the services provided are and what is going to be involved. A lot of the clients I have don’t want to pay for a full financial planning from the beginning but they pick a segment, and when we complete that segment, we move into other areas over periods of time, gradually into a full comprehensive plan, which I encourage. Sometimes the full plan is too much for people to adapt to at one time. But I’ve seen price ranges from approximately $650 to $5000 or $6000.

5. What is a reasonable return for a client to expect and how are results typically measured?
There is no one standard that you can use because if you are dealing with somebody who is very risk-averse, you are not going to be able to put together a portfolio that they are comfortable with and get the same results as somebody who’s willing to take more risks. So what we try to do is to create a benchmark based on what we think is appropriate for that client, and we measure future performance against that benchmark. So for example, if there are two similar portfolios with 60 percent stocks and 40 percent bonds, but one portfolio has riskier bonds and a more diverse portfolio with foreign stocks and small cap [stocks], that portfolio will have a higher rate of expected return even though the two portfolios have the same composition of bonds and stocks.

6. What advice do you have for finding the right planner that suits your needs and investing style?
You can look up what their education and their experiences are, and that’s important. But you have to be able to form a relationship with the planner and that’s built on a few parameters. For example, I am one of about 2,000 members of the National Association of Personal Financial Advisors. This group of people believe very strongly in fee-only, we try to avoid any conflicts from commissions and selling products, and we all believe in comprehensive planning. Even if we are not making a comprehensive plan, we are always trying to think how one thing affects another.
You can also get an idea by talking to them. Some of the questions I have been asked are: What do you read? How much time do you spend reading? How much time do you spend studying? Everybody looks for something different but you are trying to look for someone who has proven themselves over a period of time, and has the right type of experience and education to think things through and come up with alternatives. And that’s why many financial planners make available their backgrounds and professional organizations.

Joseph Smith is a Certified Public Accountant and a member of the National Association of Personal Finance Advisors. He also has a law degree.

This week, Oshkosh received $234.8 million in contracts to provide armor and explosive protection kits for military all-terrain vehicles from the U.S. Department of Defense. Oshkosh, a manufacturer of heavy trucks and access equipment, announced $234.8 million in awards Friday, including  $141.6 million in awards the Defense Department announced Thursday.

“These are pretty profitable contracts when you start to talk aftermarket,” said Paul Bodnar, an analyst with Longbow Research in Independence, Ohio, referring to accessories added to vehicles after the vehicles themselves have been delivered. Such accessories often carry higher margins than the initial vehicle sales. “It could mean 40 or 50 cents in earnings,” Bodnar said. “Overall, the numbers don’t include all the aftermarket revenue.”

This week’s contract announcements follow on the heels of a $410 million five-year contract the Defense Department already awarded to the company this year to produce tactical vehicles and trailers for the Army. The company has received more than $5 billion in contracts related to its Mine Resistant Ambush Protected All-Terrain Vehicles and accessories.

The vehicle, M-ATV for short, was designed for the predominantly off-road terrain troops encounter in Afghanistan.

Oshkosh is staging a healthy recovery from a November 2008 slump that saw Oshkosh shares fall to $3.8536, less than a tenth of where the company trades now. Investors punished Oshkosh after the company loaded up on debt in order to acquire non-defense companies, seeking stability in diversity. Oshkosh had the misfortune to take that step as the U.S economy bottomed out, and revenues from these acquisitions, particularly JLG Industries Inc., a manufacturer of aerial work platforms with earnings tightly connected to the housing industry, far underperformed expectations.

Oshkosh is now using ample cash from the ongoing inflow of defense awards to aggressively pay off the debt it took on buying other companies. In September, long-term debt to total assets at the end of the company’s fourth quarter of 2009 had fallen  to 42.4 percent from a 2007 peak of 46.5 percent.

SE/MEDILL

Shares of Oshkosh rallied as much as 3.1 percent Friday morning after falling by 23 percent from a two-year high on April 23. Shares closed at $33.98 on Thursday. Before today, the Standard & Poor’s 500 Index has fallen 12.2 percent from a seven-month high on April 26.

Defense contractors are faring better than the economy at large; before today, the Standard & Poor’s Aerospace & Defense Select Industry Index grew 5.4 percent since Jan. 1, while the broader measure, the S&P 500, has fallen by 3.2 percent in the same period.

Defense Secretary Robert Gates in April unveiled a proposed 2010 defense budget that slashes military spending. His proposed cuts hit big-ticket items hardest and may spare companies like Oshkosh, which makes the vehicles that are part of day-to-day operations.

“Obviously, tightening of budgets will impact anyone who is involved with military contracts but ours are for vehicles versus weaponry systems,” said John Daggett, a spokesman for Oshkosh. The M-ATV “will have a place in the military stable for years to come,” Daggett said.

Oshkosh is a small player in the defense contracting universe, with $3.92 billion in market capitalization, it is about 1/15th the size of the world’s largest military contractor, Bethesda, Md.-based Lockheed Martin Corporation. About half of the company’s revenue in 2009 came from its defense division. Other divisions manufacture heavy trucks for fire and emergency work, cranes, cement mixers and broadcast news.

“I think defense will stay stronger than people expect for a longer time,” Bodnar said.

A couple days ago, I wrote about how it seemed that anecdotally, Chicago’s hotel industry is beginning to see signs of the economic recovery. Yesterday, we discussed how national quarterly numbers prove that trend across the country. Today, we finish the week with more positive numbers, this time about Chicago.

Smith Travel Research Inc. generously provided me with those same quarterly numbers, but specifically for the Chicago market, and it looks like we can safely say Chicago’s hotel industry is joining the nation and is hopping on the springtime bandwagon.

According to STR, the number of rooms sold rose 5.3 percent year-to-date March 2010. That number, essentially the demand for hotel rooms, is the number one metric STR uses at when trying to gauge where the hotel industry is trending. March alone saw an 8.5 percent increase in demand for rooms. Nationally, this is the fourth consecutive month of demand increases year-over-year. This signals to hotels that the uptick in demand isn’t a fluke. With tourism season beginning to kick into gear, we can expect demand to continue to rise.

Occupancy rate, different from demand in that it divides rooms sold by rooms available (so occupancy rate could decrease even as demand increased if the supply of rooms went up), also went up for the Chicago market. The average occupancy rate was 47.6 percent for the first quarter, which sounds low, until you compare it with the 45.5 percent hotels saw for the same period last year. That’s a 4.5 percent increase, better than the national average increase of 2.3 percent.

Where Chicago underperforms is in the average daily rate and revenue per available rooms. Better known as ADR and RevPAR respectively, the two metrics, combined with occupancy rate, are the key performance indicators monitored by the hotel industry. For Chicago hotels, ADR fell 10.3 percent to $93.04 for the first quarter, while RevPAR slid 6.3 percent to $44.27. Nationally, both numbers fell as well, but not by as much: ADR by 4.3 percent to $96.27 and RevPAR by 2.1 percent to $50.01.

The mixed performance indicates a significant, but very unstable recovery for the Chicago hotel industry. Despite outperforming the nation in occupancy rate, Chicago hotels lost more in terms of revenue because of its lower average daily rates.

Those rates will be the metric to watch in the coming months. As Jeff Higley, editorial director at HotelNewsNow.com (STR’s news division) told me, once we start to see rates increase, that’s when we know there’s a true and solid recovery coming for the hotel industry.

But as he also said, in order for hotels to do that, demand needs to continue to increase first, and these numbers are the proof that such a trend is occurring, even right here in Chicago.

How are your fellow Chicagoans saving money? Jeniece Pettitt talked to people in Daley Plaza to find out.

Front to back: Brett Gordon, Ross Posner, Jonathan Harris, Shawn Wischmeier, Andrew McDonough, conference organizer.

The Kellogg School of Management’s private equity and venture capital conference brought in executives and managers whose firms represent billions of investment dollars Feb. 10 to mix with students and professionals. The alpha-seekers spoke their minds on the current state and future of investment.

The tone was one of metered positivity, with sobering dissections of how private equity and venture capital dealt with bombastic crisis levels and what that meant for the types of companies they fund and strategies they use. In short, both industries saw huge trimming in the past two years after reaching levels of oversaturation. With so many funds burned or weeded out, now opportunity abounds, according to panelists and attendees. And like their respective strategies, private equity looks a little steadier while venture capital could have the bigger upside—for reasons that include a more favorable opinion in Congress.

U.S. private equity funds raised only $95.8 billion in 2009, down 68 percent from 2008, according to Dow Jones LP Source. Meanwhile venture capital funds raised $15.2 billion last year, a 47 percent decline since 2008, according to Thomson Reuters.

Notably, several attendees’ firms had just raised funds. To name two, New Enterprise Associates recently closed a behemoth $2.48 billion venture capital fund, 20 times the size of the average venture fund raised last year, according to BusinessWeek; Prophet Equity raised a $250 million private equity fund to invest in middle-market companies, according to CEO Ross Gatlin.

Still before others follow suit, of immediate concern is regulation going through the mill in Washington:

Carried-interest

The House passed the “Tax Extenders Act of 2009,” which is stalled in the Senate. The law would treat private-equity and hedge-fund managers’ carried interest as income instead of capital gains. Carried interest is the cut of a fund’s profits given to the managers as a fee, which is often 20 percent of the total profit of the fund. That income is currently taxed at the capital-gains rate of 15 percent, compared to the 35 percent tax on ordinary income.

Venture-capital legend Dick Kramlich, co-founder of New Enterprise Associates, reminded the audience that House Financial Services Chairman Barney Frank had commented that venture capital does not pose a systemic risk.

“Anyone who would tax capital gains as income doesn’t understand grassroots venture-capital business,” he said. Kramlich hopes that instead of taxing it, Congress will put a time limit on reinvesting the money earned.

Private equity appears not to be so lucky, though that’s not going to deter many in the industry.

“Nobody’s going to get out of the business because of the tax change,” Gatlin said during the day’s last panel and lively finale featuring New York Times journalist Andrew Ross Sorkin.

Brett Gordon, the managing director of HarbourVest Partners, doesn’t think it’s a done deal. But what might incent managers will be different though with the same result. He thought that though incentive structure would appear different, MBAs would figure out a way to make the resulting compensation the same.

Volcker Rule

The rule, proposed by former Federal Reserve chairman and White House adviser Paul Volcker, is designed to prevent certain banks from trading and investing for their own benefit. Specifically those banks would no longer be allowed to invest in, own or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving their customers.

Gatlin said the Volcker rule is missing the core point.

“If you keep more transactions on your balance sheet it will give you a stake in the investment,” he said. If everybody took a piece of the transaction, “we would all be better off,” he said.

HavbourVest’s Gordon sees it as an opportunity.

“I kind of roll up my sleeves and say this is where the fun is going to start,” Gordon said, referring to the secondaries that could become available if the big banks have to shed their PE businesses.

Keynote speaker

Chuck Esserman, CEO TSG Consumer Partners, provided an insight into how his fund has weathered–or thrived rather–during the downturn.

Esserman might have sympathy for those struggling in the tough economy, but he won’t have empathy. His fund was up in both 2008 and 2009. TSG’s last five exits–which include Energy Brands (think Vitamin Water), Smart Balance and PuerOlogy–have turned a total value of $300 million into $3 billion, he said.

Esserman’s TSG boasts an average return on investment of 50 percent for 27 years. Want to get some of that action? Too bad.

“To invest in our fund today, you essentially had to invest in our fund 15 years ago,” he said.

He went on to explain the strategy by first saying what not to do.

“It’s not investing when you extract all the equity out of the company at the outset,” he chided some of the more vilified leveraged-buyout strategies.

He explained TSG doesn’t take the portfolio approach to managing risk, instead singularly targeting an industry sector, such as consumer products. Some philosophies are that it’s OK to lose money on some investments so long as the others pay off. TSG’s philosophy is that it’s never okay to lose money on an investment, and so they’re willing to exchange upside for downside protection.

So they have time to romance their prospective investments.

“We sometimes court companies for years and contact them on a direct basis,” Esserman said. In fact, in answering a question from the audience Esserman revealed that TSG itself has sourced 95 percent of its deals. Still investment bankers aren’t left out by any means, as TSG uses them in all of their exits.

The TSG approach

Increase equity using little or no leverage to maximize growth. “High debt to increase returns is not a business model for the future,” says Esserman.

Specialized operational expertise is more important than financial expertise.

Valuing consensus over hierarchy.

Right fund size is less than $1 billion.

Quote to take home: “You need to put investment back into investing.”

Keynote speaker

Dick Kramlich, of New Enterprise Associates, spoke for VC investing. “Our very existence is being threatened,” Kramlich said at the outset.

Kramlich told the story of Groupon, a startup in which NEA has invested that is a social networking innovation that actually makes money.

He touted India and China, the latter of which he has lived in for nearly the past two years.

“You’re not in the venture capital business today if you’re not in those two countries,” Kramlich said.

He then launched a defense of venture-capital investing and infused some lobbying efforts, warning against high capital-gains taxes.

What’s more, he advocated keeping the best foreign-born entrepreneurs in this country.

Kramlich’s new fund

Hasn’t changed his structure from heavily rewarding performance, with a 1.25 percent fee, with 1 percent general-partner investment and 99 percent limited partners, and 30 percent of the carry going to the general partners on profits.

While the new investors were a few larger funds, 80 percent of the investors in the new fund are returning limited partners.

Panels

The first panel of the day was a group of limited partners, which allocate capital to investment funds.

Jonathan Harris, the president of Alternative Investment Management, said there is a lot of pent up demand to put money to work, especially by sovereign wealth funds, among others.

Things were so bad last year, “people were asking for just a return of capital, not a return on capital,” he said. That has changed and they are again looking for high returns.

In fact, Gordon, of HarbourVest, expressed the relief felt around the industry.

“It wasn’t as bad as people thought it would end up.” He said there were only 79 bankruptcies across private equity portfolios, fewer than people thought there would be, and that may mean some people don’t learn their lessons.

“We live in a world where there are short memories,” he said. The debt markets, especially high-yield, have returned to bail people out again. What’s more, he saw dividend recaps in the portfolio at the end of last year. “We didn’t think we’d ever see that again.”

Ross Posner, the director of the private equity group for Allstate Investments, added that there will still be a select few companies that get money.

“Those that got funded last year will get funded this year,” he said. The conversation is now back to “Where is the value creation?”

Shawn Wischmeier, the chief investment officer of Indiana Public Employees Retirement Fund, made observed the difficulty in raising a fund in 2010. People who were going to raise a fund in 2009 but put it off until 2010 will compete with those who always planned to raise money in 2010. “There’s going to be a greater demand for LP capital than LP capital in the next year or two,” Wischmeier said. Because of that, he sees opportunities in the secondary markets.

The secondary market

The secondary market where stakes in illiquid private-equity investments are bought and sold, looked to ramping up. PE secondary investing funds were the only group to see an increase in fundraising in 2009.

There were a lot of listings in private-equity secondaries in 2009, though few sales because capital calls never came, Harris said. Now with capital calls coming, the secondary market might pick up, creating a buyers’ market and bringing non-traditional buyers into the market

“A lot of people invested in secondary funds. A lot of that is going to be wasted,” Harris said. “Experienced, patient disciplined buyers will do well, but there are going to be a lot of tears out there.”

One panel moderated by Sanford Perl of Kirkland & Ellis featured the beaming entrepreneur Jeff Aronin, along with the supporting cast of investors and a colleague who took Ovation Pharmaceuticals from a startup in 2000 to sell it in February 2009 for $900 million. Much was a discussion of what does it take to recognize opportunities and jump on them and then follow through to success. Jeff was the “real deal,” said Highland Capital CEO Gidon Cohen, who was a minority investor in Ovation from start to sale.

Dean Mihas, the principal of GTCR Rolder Rauner, another investor in Ovation, brought up the philosophical quandary of the conference: He pondered the paradox of how MBAs today coming from programs such as Kellogg potentially don’t become entrepreneurs because of their opportunity set.

“Why would you take a job for [$75,000] a year and a bunch of equity when you can make a half million at Goldman Sachs?” he asked.

As a journalist making 80 cents a word on a good day, I maintained composure–but just barely.

The finale

The New York Times Andrew Sorkin grilled the last panel on the future of private equity.

Gatlin, of Prophet Equity, a private-equity fund that invests in large middle-market companies, echoed the sentiment of many, saying his firm had to become picky and only choose deals that would maintain a high level of returns.

“I’m preserving my cash and not doing stupid deals,” he said.

Glastis, founding principal of Prospect Partners, which invests in smaller middle-market firms, spoke up for those who accepted lower returns in order to put money to work. “Our expected IRR was dropping as leverage was unavailable, and our LPs were very happy about less risk and lower returns,” he said.

Kelvin Walker, a partner of the Dallas-based investment firm 21st Century Group, said his firm has changed its fundamental strategy for the rest of the calendar year. It used to look for $10 million in revenue, but now needs above $15 million to $20 million because they can’t get leverage for the smaller companies.

David Chapin, a partner at Ropes & Gray who represents large private equity funds, commented on the opportunity for refinancing portfolios.

“People are pre-refinancing some of the maturities taking advantage of the high-yield funding,” he said.

Gatlin firmly announced things had changed from the boom times.

“It’s a return on capital environment. It’s not going back to the way it was,” Gatlin said.

At one point, Gatlin so animatedly expounded his approach that Sorkin suggested he have his own reality show.

There was some debate between the large multibillion dollar side and the smaller $100 million side, with those on the smaller side reproaching large funds for keeping a two-and-20 pay structure, which is a 2 percent annual management fee along with receiving 20 percent of the profit from investment.

Glastis made the point that some firms lived off the management fees instead of investing. Essentially he said taking a 2 percent management fee on a billion dollar fund takes incentives away from investing. On the other hand, smaller firms will need to invest: “We are just investors. We are not fund managers,” Glastis said.

This generation will be different and will likely avoid the problem of too much debt like what had happened in this recent cycle, he said.

“We as consumers don’t like debt like we used to,” Glastis said.

Kellogg also hosted panels on the future of venture capital and private equity firm management.

Check out Kellogg MBA student and Financial Times blogger Nathaniel Lang for a British perspective: http://blogs.ft.com/mba-blog/author/nathaniellang/