When the dust from this protracted financial crisis settles sometime in 2009, the demand for independent, objective advice is likely to be stronger than ever. And it will likely be a great time to be a financial advisor as panic subsides, as expectations for investment returns become more reasonable and as clients' lives return to some sort of normalcy. Smart advisory firms, like all savvy businesses, will view the current climate as an opportunity to sharpen their competitive advantage and gain market share.
But I expect to see a serious debate break out in the advisory profession about the basic job description of a financial advisor. Specifically, the arguments about what the differences are between the roles of a life planner, a financial planner and an asset manager are likely to sharpen rather than fade away.
The raison d'etre behind the life planning movement spawned in the 1990s was that services like financial planning and asset management were being commoditized, and since so many clients were becoming wealthy beyond their dreams, the big issues they faced were what to do with the second half of their lives. Even if that challenge remains relevant for many clients, these days most are focused on issues a little closer to their wallets.
In normal times, money really isn't as important as some folks make it out to be. But these are hardly normal times. Millions of Americans-and thousands of advisors' clients-have entered or are approaching their 60s, and many had expected to achieve some kind of financial independence, or at least security.
Still, it's striking how many times in recent months one has overheard an experienced advisor question colleagues who say it's all about the client relationship, that even though their clients' portfolios are down 25% to 30%, it's just a rough patch they'll get through together. Hope they are right.
Like many mainstream advisors, I happen to be a believer in both asset allocation and buy-and-hold investing with tactical adjustments. That's easy for me to say since I don't manage the life savings of hundreds of people. But I've always thought market timing is a fool's errand and can cite many examples that prove it.
What is striking, however, is how many of the smartest advisors extant aren't buying into the conventional wisdom any longer. Even if they're not embracing market timing, people like Bill Bengen of El Cajon, Calif., Tom Connelly of St. Paul, Minn., and Mike Martin of Columbia, Md., are looking at new ways to deliver clients the results they need to remain comfortable.
Nobody saw this train wreck coming. Even after it was well under way, the damage proved difficult to contain. In late September, legendary investor Warren Buffett made investments in great U.S. companies like General Electric and Goldman Sachs, both of which had seen their shares decline 40% over the 52 weeks prior to his purchases. Since then, they've fallen another 35% or 40%.
The guess here is that most advisors' clients who stick with their plans will survive this mess. But it's also certain that both clients and advisors will engage in some long, hard thinking about traditional assumptions over the next few years.
Evan Simonoff, Editor-in-chief
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