Late last summer, most advisors were well aware that equity prices could fall further even though the markets were already down about 20% from their late-2007 highs.

Yet few financial savants imagined that stock prices could fall as far and as fast as they did last September and October, or that a manufacturing powerhouse like Japan, the world's second-largest economy, would see its exports drop 40% in a few weeks, or that a global corporation with triple A-rated debt like General Electric could face a life-threatening event when it was unable to roll over its short-term commercial paper in a credit market paralyzed by the bankruptcy of venerable Lehman Brothers. Suddenly, unthinkable events became reality, and it shook our financial confidence to the core. For many financial advisors, the recession that began in late 2007 and later imploded into a near-depression was the most difficult period of their careers. It tested old assumptions and left some contemplating new ways of doing their jobs.

Senior editor Jeff Schlegel spoke with six advisors about what the recent turmoil taught them about their practice and the industry in general.

Richard Kahler, president of Kahler Financial Group, Rapid City, S.D.
One of the things I've learned from the financial crisis is that there's great value in alternative investments. I've been using alternative investments for at least ten years with commodities and REITs, and more recently with absolute-return strategies such as convertible arbitrage and merger arbitrage. I use mutual funds, not partnerships.

As part of the crisis, I've added managed futures and changed the commodities structure a little. And I've also added some new absolute-return funds with managers who do short selling and covered calls. These include Hussman Strategic Growth fund, Caldwell & Orkin Market Opportunity fund and Leuthold Core Investment fund.

On the bond side, I've learned not to do corporate ladders anymore. I had clients in Lehman Brothers and Washington Mutual, and all of my bond ladders suffered about the same losses as a bond mutual fund. I sold them when Lehman Brothers went down because I realized I can't trust the ratings anymore. Until they change the way bonds are rated and I can have confidence in Moody's, S&P and Fitch, I'll use bond funds and not ladders.

I started out as a financial planner, and about five years ago was pretty solid in terms of being an investment manager. Then I started ramping up to do more planning and basically got there when the crisis hit. And I'm glad I did because I lost a higher percentage of investment clients than planning clients--three on the investment side and one on the planning side, or about 5% of my total.

I'm thinking I may not take investment-only clients anymore, because with them it's more like, "What have you done for me lately?" This crisis absolutely brought out the difference between investment-only and financial planning clients. You're providing so much more value to financial planning clients, especially when you add innovative financial products or life planning services into the mix.

That relationship is so much stronger. Their focus isn't so much on returns; it's about making their lives better and the whole financial picture, asset protection, cash-flow management and everything else. I'm more valuable to those people as a financial planner than as an investment manager. That's a real wake-up to me.

The crisis also reinforced the great benefit of embracing technology and having a lean, scaled-down operation. We cut our number of full-time employees by half because of the recession, so we need more efficiencies to make up for that. We've put more information on our Web site and made the site more interactive to make it work as an employee for us.