These are the strangest of times for financial planners with the horrendous market slide not only undermining our clients’ wealth and our reputations, but also our confidence. Sure, if you have played the Storm-like game, you might find it difficult to argue your position for a fair shake from clients, but if you have played by the rules, all you can do is grin and bear it.
This has been a tough year for both clients and financial planners. Personally, I have spent about one-twelfth of my past year in New York and I never even left my couch.
Getting up every morning and turning my lonely eyes to the New York Stock Exchange, there has been little relief. It has been like watching paint dry that never dried.
A few weeks ago I was MC at a financial planners’ annual conference, and one planner later caught up with me and reassured me that he thought my jokes were funny. I guess he thought the reaction to my “very amusing” stories was a little bit restrained.
“It simply has been such a hard year, I think we are finding it difficult to laugh,” he said.
Certainly, the behaviour of the Obama administration and the markets’ reactions have not made our lives, as financial planners, any easier to live.
In simple terms, the new team in the White House are failing Crisis Management 101 by not giving the market strong direction and details on their plans for US banking. Will there be nationalisation? Will there be a bad bank? What happens if a bank fails the stress test?
Over in Europe, the question marks remain and macro-economically the mob at the European central bank are looking like morons.
I said this last year and I have to say it again, that our crisis is as much a case of leadership failure as it is policy stupidity.
Ironically, at home the Rudd Government and the Reserve Bank have acted quickly, and while the task to avert a recession is a massive one, they at least are giving it a real shot. And quick action is critical when confidence is diving — this is the lesson from the failings in America for at least a year.
As procrastination and a failure to make sound, clearly articulated decisions lie at the heart of the current crisis, what do we say to clients who want to turn to cash?
For my own clients, I recently sent them this note: “For those worried about the markets now, please remember that we are long-term investors and your portfolios have been invested in different asset classes to match your specific investment circumstances. This is the biggest market challenge in most of our lifetimes but eventually markets will turn around.
“After four years of the stockmarket going up over 20 per cent, we are now in a shocking downturn, but that’s why we estimate the future income and growth generated from your financial plans based on conservative figures over a long time.
“As financial planners, we are not punters. We follow the rules of a diversified portfolio held over time and history is on our side. This is a terribly anxious period, but the tide will change.
“AMP’s Shane Oliver believes the S&P/ASX 200 will finish at 4500 this year. Keep this in mind when considering your position.”
I refuse to even consider that we are all going to hell in a handbasket, but I also have to avoid gambling with my clients’ assets.
If we make the judgement call that we should go to cash now, it could mean our clients miss out on the eventual share price bounce. We have to hold the faith that over time the market will reverse the over-selling.
We can’t tell our clients at the beginning of a relationship that we are long-term investors and then take a short-term guess that going to cash now will be the best decision. If you play the punter, you can win, but you can lose, and if you do, you are in a Storm predicament.
I think one of the best services we can deliver to clients in these trying times is to remind them of the underlying philosophy of their financial plan and how history says it is wise to stick solidly to it. If you change horses mid-race and get it wrong, your only defence is: “It seemed like a good idea at the time.”
By sticking to the tried and tested conventions of sound financial planning, you have more than one leg to stand on.
By the way, on the day when the S&P 500 broke 700 points, Bob Doll, the vice chairman of BlackRock, advised the following on the CNBC website: “We kind of retraced our steps. That’s what the bottoming process is about. You build a rally. You give it back. You build a rally. You give it back.
“My message to anybody who will listen is: ‘dollar cost average back into stocks’,” he said. “A lot of people with a ton of cash on the sidelines are scared to death…the risk reward is improving, is what I’m saying.”