Return To Basic Principles
One of the attractions of the financial services business is that there‚s never a dull moment. That‚s true whether you‚re an advisor, a broker, a money manager or even an editor.
It‚s particularly intriguing when an old cycle ends and a new one begins, as is happening right now. Change is in the air, even though the new decade has yet to define itself. In the financial markets, it‚s payback time for value investors. In financial advisors‚ offices, a lot of new long faces are coming through the door.
If the 1980s and 1990s were often about working hard and making money, the guess here is that the next decade will be about issues that are a lot more meaningful and less materialistic. Even before September 11, our new president set the tone by making education his top domestic priority. It‚s nice these days to see a government program in which the beneficiaries aren‚t even voters, much less campaign contributors. After September 11, the entire world got to see the other side of America when there was an outpouring of charity.
As I mentioned in this space in the October issue, our nation always looks best when its back is to the wall. The same is true of this profession.
America and its financial markets may be the best place in the world to invest, but they are far from perfect. We all knew that before the Enron debacle. It now looks like the financial reporting crisis will play the same role in this recession that the real estate and banking crises played in the last one.
Former Securities and Exchange Commission Chairman Arthur Levitt served in that position longer than any of his predecessors and has a long list of achievements to his credit. But his proposal to exempt certain brokers at large firms wasn‚t one of them. And his valiant attempt to force the Big Five accounting firms to split up their low-margin auditing business and high-margin consulting business was stillborn.
Few firms played a more pivotal role in defeating that proposal than Enron‚s auditors, Arthur Andersen, once viewed as the nation‚s most prestigious accounting firm. As new information about the accounting scandal surfaces daily with reports that Enron insiders warned top management that a crisis was about to unravel, one can‚t help but wonder if the folks at Arthur Andersen don‚t rue their own success in lobbying. Be careful what you wish for, you just might get it. To quote the president‚s father, Andersen is now in very deep "doo-doo."
I wish I could be confident that the crisis could produce a groundswell in Congress to force a quick upgrade of financial reporting standards. But it‚s likely to take longer than most of us would hope. Until then, however, clouds are likely to linger over the financial markets, even though many companies are conservative and uncreative in their reporting. If it helps keep stock prices depressed for an extended period, it may be the companies themselves that demand more transparency, a word once used to refer to accounting practices in emerging markets.
For financial advisors, it‚s just one more reason to go back to the basic concepts of financial planning. Dowdy areas of the profession like saving, spending, insurance, cash flow and budgeting are enjoying a resurgence in their importance. And that‚s very good news.
Evan Simonoff, Editor-in-Chief