Big Blunders
Everyone makes mistakes, and top advisors tell us some of theirs.
One of the chief jobs of a financial advisor is to help clients avoid mistakes before they happen-and to be in a position to deal with them when they do.
But what happens when advisors are the ones making the mistakes?
Advisors who've been in that position say there's really only one thing you can do when that happens: Learn from them.
"I've been around long enough to recognize that there is no one, if they are honest, who can say they never made a mistake," says Joseph Murtagh, president and founder of The Source financial planning firm in Goshen, N.Y.
What was Murtagh's biggest mistake? In the 1980s he poured client assets into high-quality, triple-net-leased real estate partnerships, in the process obtaining a $2 tax deduction for his clients for every $1 invested. Then an unfortunate thing happened: The federal government did away with the deductions in the 1986 tax reform act. Murtagh knew such a turn of events was possible, but what he didn't expect was the feds eliminating the grandfathering provisions that had been granted in prior tax reforms.
As a result, his clients' assets were stuck in partnerships-some of them to this very day. He lost most of his clientele in the process and had to rebuild much of his practice, almost from the ground up.
The lesson, as he sees it, is to never trust the government, so much so that he even tells clients to be wary of the tax benefits of Roth IRAs.
"What I learned from that very painful experience is that laws change, governments change their mind and that the tax consequences of investments that my clients are considering could be completely different or vanish," he says.
Some mistakes are so high on the "learning experience" meter that they become part of firm folklore. David Diesslin of Diesslin & Associates in Fort Worth, Texas, never tires of retelling his biggest blunder. It happened in the 1980s when, against his better judgment, he allowed a client to talk him into helping him buy a home that Diesslin felt was beyond his means. The purchase, Diesslin feels, played a part in an ensuing divorce and bankruptcy that the client went through. The ordeal led to changes at Diesslin's firm, the primary one being that Diesslin will no longer compromise with clients when it comes to his best advice.
Quite often, to drive that philosophy home, he will tell clients the story of the bankrupt and divorced client. "I remember how much sleep I lost and how bad I felt," Diesslin says.