“The only thing we have to fear is fear itself.”
So said Franklin Delano Roosevelt on March 4, 1933 in his inaugural address as President of the US, right after the banking system collapsed.
He went on to say: “In our progress toward a resumption of work we require two safeguards against a return of the evils of the old order: there must be strict supervision of banking and credits and investments, and there must be an end to speculation with other people’s money…”
His “new deal” then brought about the economic recovery from the Great Depression, and the rest, as they say, is history.
How chilling that here we are, 75 years on, talking about the collapse of our financial system.
Having just returned from overseas meetings with colleagues at various events, I can report directly on what financial planners, their clients, and other key stakeholders are doing and how they are behaving at the moment.
Financial planners around the world are coming to the fore, though it is in the US that we have the closest affinity in terms of media and consumer interest, and awareness.
Governments everywhere are scrambling for solutions that they hope will arrest the alarming decline in consumer confidence. Regulators are talking black and white law rather than principles-based regulation.
The media is alive with anticipation of the next crisis, sharp rise in the markets, and sharp decline the very next day.
And amidst all of this, Australia barely rated a mention, other than the catchy headline in a UK newspaper: “Australians urged to eat more kangaroo and save the world”, which was a story about the fact that kangaroos emit less methane gas than cows and are therefore far better for the environment.
But that’s a story for another day. In the US there’s a flight to Treasury and municipal bonds, and cash.
The US remuneration structure is heavily geared to options and stock. Imagine your entire net worth being heavily invested in the company you work for, and watching the share price plummet – not only is your retirement account plummeting but so is your entire value.
And then to be told that, due to the crisis, job losses are inevitable. The disbelief, unease and sheer inability to chart new territories is palpable. America is an innovative nation and now more than ever it is required to draw on every bit of innovation.
Financial planners have welcomed the end of the US election so the Government can focus on a new direction with clarity and certainty.
The FPA in the US has taken out a full-page advert in USA Today promoting the benefits of financial planning in these difficult times. They have launched a similar resource centre to the FPA in Australia, offering their members services such as counselling, education and communication so they can learn from and support each other, and their clients.
In the UK there is a bias toward more passively invested portfolios, and more conservative portfolios, certainly amongst CFP professionals.
The everyday punter in the UK is walking into the big-brand High Street Bank and taking all their money out, placing it in government-backed banks, or in Ireland, or under the bed. Northern Rock has had to close its doors to new deposits.
The Government has also extended its guarantee from £35,000 to £50,000. In Hong Kong people are demonstrating outside the Monetary Authority after a case of alleged mis-selling of “mini-bonds”, which were in fact structured investments with far more risk than their name implied.
Some HK$15b in funds has been caught up in this saga and the money has all but disappeared. A number of prominent banks were heavily involved in the sale of these products and financial planners could very well have been involved, too, though this is unclear at the moment.
Some 20,000 complaints have been lodged to the three regulators thus far and this promises to be a defining point in Hong Kong’s financial services history.
One thing is common everywhere: a degree of desperation. Planners and clients alike are simply lost for words.
Sitting tight is about the only thing people can do, unless you have spare cash and can go back into the market. I was with one planner who went into the market quite aggressively, only to find that they lost 10 per cent the next day as the markets continued to fall.
So, are there any common strategies and new products that are emerging? There’s an interesting new longevity annuity product in the UK that delivers an increasing income stream after age 75 based on pooling assets of other unitholders.
Treasury bonds and government-backed securities are a safe haven, but with little or no return at present. Anything with a government guarantee is a major beneficiary of funds.
And there are plenty of questions about when to get back into the markets. Like Australia, those most affected are retirees who rely on income streams, and like Australia, many countries (but not in Asia) still have high personal debt levels, so any spare cash is being directed at debt repayments.
Mostly, clients are “sitting tight” and waiting for the storm to move on. Most countries are building up very significant piles of cash which is neither being lent, nor invested. What are the opportunities for financial planners?
Ed Jacobsen, world-renowned coach and mentor to many financial planners, who is based in the US, believes that there is never enough communication when times are tough. Now is the time to live your value proposition. We have seen very different approaches from financial planners overseas, and here in Australia.
Some have gone into communications overdrive with a plethora of charts, projections and reassuring statements, emails and letters; others have provided meagre offerings that are bland, way too vague and plainly not good enough. Ed Jacobsen will tell you that financial planners need to get their own confidence levels and strategies in place first, before approaching clients.
Being exasperated and confused doesn’t make for good client relationships. Clients will understand that you may not have definitive answers or solutions, but they certainly expect to be kept informed.
And they are waiting for the next move. Around the world financial planners are re-affirming their “value propositions” and reminding clients of the value of good financial advice, and of the long-term strategies that have been put in place. The years of education are paying off.
Positioning clients for the rebound, looking for buying opportunities, focusing on asset allocation and diversification are the high priorities right now. Staying informed about the various
Government initiatives, including protections for those who are genuinely disadvantaged, such as retirees who cannot access income streams. And there’s talk of disagreements with clients on strategies and changes.
This is a brave new world where the rules have not yet been written and the territory is uncharted. But now is the time that financial planners come to the fore. Now is the time when you can prove your value both strategically, and as educators and as professionals. And financial planners around the world are doing just that.