A financial advisor who occasionally moonlights as an expert witness recently told me that he had many more requests to testify than he can handle. As the financial services business emerges from the Great Recession, we continue to discover new details about how the global economy came so close to something even worse than what we've experienced. Books by Michael Lewis, Vicky Ward, Charles Gasparino, and Andrew Ross Sorkin are taking great pains to spell out how this perfect storm unfolded.

But within the relatively small financial planning world, there are other disturbing trends that some advisors are only willing to talk about now. Sad to say, several advisors are now willing to admit that they had a surprisingly high number of clients who panicked some time between October 2008 and March 2009.

In those dark days, few advisors or other experts would have argued that the Dow Jones Industrial Average couldn't have fallen from the 7,000 area to 3,000 or 4,000. That's what some alarmists who claimed to have predicted the debacle were saying at the time, which may just turn out to have been a once-in-a-lifetime buying opportunity.

How did clients panic? Some went completely to cash and haven't returned. Others went from 60% equities to 30% equities and failed to capture most of the rebound.

The most depressing news should hardly be surprising. More than a few clients who had agreed on an 80% allocation to equities, and who had expressed their high tolerance for risk, capitulated. Now some of these supposed daredevils, egged on by the plaintiffs' bar, are suing. I just hope their advisors had well-documented investment policy statements signed jointly by the advisor and the client.

All of which raises another question. Aside from the preposterous notion that an advisor could have sold all equities, junk bonds and asset-backed securities in October 2007 and reentered these markets in early 2009, what would a prudent investor have done differently?

Some of the finest minds in the investment business are asking themselves exactly that question. Even with the benefit of hindsight, the answer many are arriving at is remarkably simple: Not much.

Ever since the crisis, the goal of most investors has been recouping their losses. Advisors who stayed the course-and perhaps even participated in the bargain basement prices available in early 2009 via rebalancing-now report that client portfolios are back to within a few percentage points of their all-time highs.

That's the good news. Unfortunately, it's a small consolation to advisors facing lawsuits or arbitrations or clients who didn't know their pain threshold or deceived, whether inadvertently or not, both themselves and their advisors.

Evan Simonoff, Editor-in-chief
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