I recently read a column by a financial journalist whom I respect. Not all such writers deserve respect.
The discussion was about how difficult times have become for those who are saving for retirement and that many may not have a net worth that's sufficient to get them comfortably though their 'golden' years.
For that column, our writer interviewed several people who earned the title of financial advisor or financial planner. Readers were told that advisors are currently worried that too many people aren't thinking clearly, and are not focused on making their next eggs last through retirement. It's not so easy to think clearly when your life savings may have been cut in half.
One such planner, who works for a large firm said that she (the advisor) decided that she "could not let people continue to spend money as usual" because today's conditions were too extraordinary. Why would anyone take advice from her now, after being hung out to dry?
From the interviews, the journalist said that "most advisors 'can't allow' people to hope the stock market eventually will fix everything." They certainly allowed that before – why would anyone follow their advice to abandon stocks now? Isn't it too late?
What I find most disturbing about this column is that these financial professionals were supposed to protect their clients from losing such large portions of their nest eggs. Their job was to help clients prepare for the future and that includes an understanding of the risks associated with investing. As far as I'm concerned, they do not do enough. Telling people to diversify, allocate assets, own some gold, buy and hold etc. worked just fine when the markets were soaring. In fact, the advisors didn't have to do anything during those bullish times. Oh yes, they did have one thing to do: charge fees.
But when the markets headed south, when good advice was needed, when investors needed protection, I ask: where were the advisors? What did they do besides charge more fees? I don't have evidence to prove anything improper was occurring. In my opinion, it's just a case of the almost blind leading the blind. But I intend to do some research on professional planners and advisors to see what I can uncover.
There ought be be a requirement that advisors learn, understand, and instruct their clients on how to reduce risk and protect themselves from a catastrophe by adopting hedging strategies.
The best way to do that is to use options to protect the value of a portfolio. Does the education of planners include any study of derivatives, including options? I'd like to know.
I recognize that too many individual investors don't have the time or willingness to learn how options work. That's the job of those who are in charge of protecting their investments. But do advisors understand how options work?
It's not my favorite approach, but put options could have been purchased as an insurance policy. That insurance is costly and perhaps collar strategies could have been used. Either would have prevented a disaster.
The point is that these advisors failed their clients, and now some of them are expressing the thoughts quoted above. The advisor has the gall to state that she would NOT ALLOW people to spend. Allow? As if it's her decision. As if she is coming to the rescue. It's far too late for that.
Now? Why not earlier? I know why. They are being defensive. Feeling badly that they hurt their clients, too many advisors are probably trying to earn additional fees by providing the same old, traditional advice now. But to me, it appears as if they are issuing commands: Thou shalt not spend. Thou shalt save more money.
And this is my favorite: After years of telling clients that buy and hold was the best strategy and that it was right not to panic during the markets decline of more than 50% – now – now these people are not ALLOWING clients to depend on the stock market. What nonsense. Don't panic when the DJIA falls to 13,000 or 10,000 or 9,000. Now, at sub-7000, now is when clients are advised to no longer hope the market can eventually fix everything. I'm not saying that such hope will be rewarded, but it's certainly a bit late to be offering that advice.
I don't know that much about financial advisors and planners, including where they get their education and why they are allowed to peddle their advice, but I intend to look into this topic further. If any of you hire planners or have information you believe is useful, please post a comment or send email to blog (at) mdwoptions (dot) com.