Basic assumption is, over time the domestic and world economy will go up

For Financial Planners, a Year of Tough Questions comments

By RON LIEBER
Published: October 16, 2009

If you think you’ve had a hard time reckoning with your own finances in the last 18 months, try putting yourself in the shoes of the financial planners who’ve been answering to scores of unhappy clients.

The planners, after all, were the ones who were supposed to help their clients avoid trouble in the first place. “I feel like I’m finally able to leave the witness protection program,” said Ross Levin, president of Accredited Investors in Edina, Minn. “There has been a loss of confidence in us and in the world, and a sense of betrayal. They did everything we told them to do, and it seemed like it didn’t work out.”

Though markets have improved, they are still far from where they once were, and that has made for some difficult discussions between financial professionals and their clients.

I wanted to find out more about those conversations. How much were clients pushing back, for example, and what were they saying? That was the main reason I moderated a discussion last Sunday at the Financial Planning Association annual meeting in Anaheim, Calif. (I received no compensation for my role there.)

While the planners were resolved and well rehearsed in front of hundreds of their peers, it was also clear that they had been severely tested in the last year. During the hourlong session, I quizzed five of them about the toughest questions their clients had asked. Here are those questions, along with the planners’ responses.

PREDICTING THE FUTURE So why didn’t most financial planners see all of this coming? Weren’t the signs obvious?

“This question actually presumes that there is something wrong with not having seen this coming,” said Elissa Buie of Yeske Buie, with offices in Vienna, Va., and San Francisco. “We live in a chaotic system, and chaotic systems are not predictable. But we know the range of possibilities, and this was always a possibility.”

Though most clients tend not to remember it years later, good financial planners will generally sit down at the beginning of a relationship, after clients have declared the sort of risk tolerance they think they have, and remind them how bad things can get in a truly outlying year. Well, 2008 into 2009 was one of those years.

Still, Ms. Buie said that even had she known the extent of the stock market carnage, it still might not have helped her clients’ performance much. “We wouldn’t have known when the turnaround was coming, so we wouldn’t have known when to change people’s portfolios.”

DIVIDING THE MONEY One of the most frightening parts of the recent market decline was that there was nowhere to hide. If you divide your assets among stocks, bonds, real estate, commodities and other investments, they are not supposed to all fall in tandem. So is the idea of asset allocation dead?

Tim Kochis, chief executive of Aspiriant, with offices in Los Angeles and San Francisco, rejects the premise of the question. “Asset allocation is not designed to protect against market movements in very short-term time horizons,” he said. “It’s designed to provide optimal performance results over very long periods of time, and there’s nothing to suggest that that expectation will not be fulfilled.”

For clients, it’s easy to blanch at something like this. Must they really wait decades to see whether their financial planner was right? Then again, getting set for retirement and not outliving your money is generally the primary goal for clients who pay for financial advice.

Older investors still had to wonder early this year whether their portfolios would ever recover. The last six months have given them some comfort, though, assuming they remained in the stock market. Mr. Kochis notes that one of the primary tenets of asset allocation is rebalancing every so often. People who did that and picked up, say, cheap stocks in emerging markets earlier this year are probably glad they did.

ESTABLISHING CONTROL Still, given what we’ve learned about the unpredictability of the markets, is there anything related to money that is within one’s control?

This is a question that people ask almost out of desperation, while throwing up their hands in despair and disgust. But there are plenty of ways to answer it. Harold Evensky of Evensky & Katz in Coral Gables, Fla., noted that the expense of investing was controllable, and clients can also often control what they pay in taxes and when.

Michael A. Branham of Cornerstone Wealth Advisors in Edina, Minn., the youngest financial planner on the panel, added an important point for midcareer professionals who are still employed. “They could control their savings rate,” he said. “They could choose how much more they wanted to add, so when we came out of this, they were able to really be ahead of the game.”


Ms. Buie said that after meeting with many clients in the last year, she found that the ones who felt best were the ones who had chosen to rein in their spending the most. “They probably felt more empowered than anyone else because they were doing something to make progress,” she said.

SNIFFING OUT THIEVES The economy was bad enough, but individuals who paid for financial advice also found themselves worrying about whether their adviser was the next Bernard L. Madoff. So how can people know for sure that they are not dealing with crooks?

The short answer is they can’t, and Ms. Buie noted that planners who had appeared at past conferences had themselves stolen client money later on. Still, Mr. Evensky noted that it could help to work with a financial adviser who kept client money with a third party like Charles Schwab or Fidelity.

That won’t protect clients against, say, forged money transfer forms. Ms. Buie said she believed that the brokerage industry needed to do a better job of creating clearer monthly statements that alerted people when money moved out of their account.

“It should say, at the top, this is how much money left your account this month,” she said. That way, people who didn’t move any money out themselves could notice any transfers more easily. She added that people who were sick, old or otherwise distracted should have trusted friends or family members reading the statements each month on their behalf.

CHANGING FOREVER When things are at their worst, the natural response is to lower expectations. As a result, many financial planners have heard some version of this question over the last year: Do I have to change my lifestyle from this point forward, forever?

For clients living close to the edge financially, or those who were older, this analysis was fairly intense, according to Mr. Kochis. “But our conclusion was not to do anything that is irreversible,” he said. Take the decision to retire, for instance. “You can’t simply snap your fingers and get your job back.”

Ms. Buie suggested focusing on what individuals really meant by lifestyle. “Even if you have a little less money, do you really have a little less life?” she said. Her firm’s mailing to clients on meaningful activities that didn’t require a lot of money got far and away the most response of anything it had ever sent out, she said. She and her husband, for instance, have saved money on travel through home exchanges.

These dark moments have provided a good opportunity to remind everyone of the fundamental assumptions that inform financial planning, whether you are working with a professional or not. “We made it very clear to clients that we have a basic, underlying belief that over time, the domestic and world economy will go up,” Mr. Evensky said.

So to those who insisted that stocks would never again be appropriate and were grasping for guaranteed returns, he simply said this to the ones who did not yet have enough cash to live on comfortably forever: “You can be certain if you put your money in C.D.’s and money markets, but you can also certainly be sure that you’ll never be able to accomplish your goals and maintain your lifestyle. There is risk no matter what you’re doing, and our judgment is that the safe thing to do is to stay invested.”

http://www.nytimes.com/2009/10/17/your-money/financial-planners/17money.html?em