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Is Your Broker Going Crazy?

Posted on | June 25, 2013 | No Comments

by Stephen Memery

On the Money June 2013A recent article in the Wall Street Journal reported that, “in the months and perhaps years following the 2008 financial crisis” as many as “93% of advisers and planners surveyed wrestled with post-traumatic stress disorder.” According to the study published in the Journal of Financial Therapy another 40% of planners reported severe symptoms of PTSD, which manifest itself in behavior ranging from avoidance to risk-taking, aggression and an inability to sleep.

Upon hearing this some may feel a sense of relief. After all, it’s nice to know that it wasn’t just the average investor losing sleep over the declines in their life savings. Perhaps financial advisors aren’t the cold-hearted reptiles that popular media has often portrayed. Others may even take it with a dose of schadenfreude, deciding it “serves them right.” Especially if they are in the middle of watching a re-run of the movie Wall Street interspersed with commercials about investment “brokers” doing business from the decks of their yachts.

A few of us may actually get worried. After all, these are the “experts.” They were supposed to know what to do with the $50 trillion we had invested in the US market in 2008. Now we find out that 93% of them were so shell-shocked they had trouble getting out of bed in the morning. It’s no wonder we have infants on TV thinking they can do better from their playpen.

The fact is, we really shouldn’t be too hard on these “advisors.” After all, since the mid 1990’s brokerage firms, which historically are responsible for most advisor education, began to move away from training their advisors to make investment decisions and instead sought to train “relationship managers”.

No longer would your advisor be expected to have an opinion about the direction of the market or the prospects of a company. Didn’t Dr. Markowitz render all that moot with Modern Portfolio Theory?  These new advisors would be taught instead that investors need someone to be their “personal CFO”, their “financial quarterback”, to help them choose from the ever-increasing number of mutual funds and third party money managers.

Most of all, today’s financial advisors are taught to “sit on the same side of the table” as their client. Is it any wonder then, that as they sat there, they were just as dumbstruck by catastrophic events as their clients were?

We used to have other names for people whose job it was to put consumers together with service providers. We called them “middle-men”. So what’s the difference between a middle-man and a relationship manager? A middle-man doesn’t get PTSD. He gets a different job.

Perhaps then we should really be looking at why there were 7% of advisors not afflicted with PTSD during a period that saw a 50% decline in the Dow Jones Industrial Average in just 18 months. Were they all middle-men who left the business, or had some in fact been preparing for difficult times? Are they Hollywood’s cold blooded reptilians walking among us, or did they have opinions about the credit bubble? Could it possibly be that they saw the uncertainty to come?

The truth is, to a greater or lesser extent, we all saw it. We had to. It was unavoidable. It was there when housing prices started their decline and again when the Fed cut rates to ease credit in the summer of 2007. It was there when Bear Stearns folded into JP Morgan. It was there when we turned on CNBC Squawk Box. It was in every client’s voice. It was with us every day. The question is not “could anyone have seen it coming?” The question is “how did you protect your clients?”

Unfortunately for so many investors, you cannot manage a relationship fast enough to protect against a market crash. While I may not fault an advisor for losing sleep, it’s no excuse for doing nothing. Protecting client investments takes more than investment advice, it takes an Investment philosophy. It takes more than an asset allocation, it takes an Allocation Strategy. It takes more than a relationship manager, it takes an Investment Manager. And it takes more than a plan to invest, it takes a “Plan to Succeed.”

Stephen D. Memery is a Chartered Portfolio Manager tm and Chartered Market Analyst tm with more than 20 years of experience in the financial industry, and a veteran of the “Flash Crash” of 2010, the “Great Recession” of 2008, the “Internet Bubble” of 2001, the “Asian Flu” of 1997 and the Bond Market Crash of 1994. He remains PTSD free. He is a Founding Partner of OV Capital, located in Old Town Alexandria, and on the web at www.OVCapital.Net.

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