For a generation this was working, right?  So whatever you do, don't go messing with this successful formula. You can't "beat the market"; we know if anyone does, it's an unsustainable anomaly or statistical aberration.

Most advisors have been cowed by the MPT mantra. They really believe that no amount of thinking can give an investor an advantage over "the market." They really believe they are helpless to improve their clients' investment experience. And now, while formerly mild-mannered clients are getting testy and the advisors themselves are losing sleep, advisors keep choosing the first of the three responses mentioned at the beginning of this column: 1) Empathize with your clients and hope the market gets back to "normal" before they all quit. Advisors do this because they have been trained that they are not smart enough to do anything else.

Do Nothing-And Bet Your Business
If you just keep hoping things will get better, you are really choosing to do nothing. Do you really think that you have no other choice? Here's a different and rather sobering way to think about  "stay the course" investment advice during these turbulent times: Suppose this advice is wrong. How much more disappointment can your clients take? Will they hang in there with you through another poor year? Two?

Just suppose that the world really has changed with the demise of the great credit cycle that gave us the 20-year free ride. Suppose that government programs and policies don't fix things, or they make things worse-think stagflation. Suppose we really are in a secular bear market with five or more years to go. Is your two- or three-year outlook for the global economy and securities markets so optimistic, so clear, that you are willing to bet your business on an early return to a bull market? 

Or Do Something
Don't like that bet?  Then maybe you would rather do something to help your clients and to decouple your business from the S&P 500. Like what? Well, you could stop providing investment advice altogether and redesign your practice around your excellent financial planning work and get paid for that. A number of successful firms use this model. Some charge a flat retainer, some charge hourly and some charge project fees. Sound good? Why not touch base with the Garrett Planning Network (www.garrettplanningnetwork.com) and get some ideas?

Or you could at least start to evolve your portfolios by removing some of your indexish, style-box-constrained long equity funds in favor of some go-anywhere managers who have the freedom to build large cash positions or maybe even go short. Buy a copy of Ken Solow's new book, Buy and Hold is Dead (Again). Add a managed futures fund and subscribe to Lou Stanasolovich's Risk Controlled Investing (www.legend-financial.com) newsletter. Changes at the fringe may be just a baby step, and could be too little too late, but it's way better than doing nothing!

Or, if you believe that solid investment returns are integral to helping your clients achieve their goals, you could either:
a) develop your own creative investment team, unconstrained by MPT's proposition that we are all hostage to mediocrity; or
b) partner with a professional investment group that already has a record of investment success and a strategy for prospering in the "new normal."

Over the long term, building an investment team in-house offers the potential advantage of boosting the profitability of your firm if you attract enough new business to leverage this fixed expense. In the short term, hiring creative people with the appropriate investment experience is a not-inconsiderable outlay. And it takes a while to build credibility.

The second approach, partnering, could take several forms. One, perhaps the first to explore if you feel your client loyalty is already waning, could be to acquire or merge with another firm that has done a standout job of protecting client wealth for the past ten years. Add your financial planning and relationship skills to their investment strengths and the whole could be greater than the sum of the parts. Of course this is a little radical for those of us who cherish our independence. Still, it may be wiser than betting the whole ranch on a sustained stock market resurgence.

But I think the approach to better investment results that will have the broadest appeal among RIAs is to remain independent and to partner with another firm for the investment management part of their service.