Time capsule: A letter to advisors of the future ... from 2008

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Editor’s Note: Nearly 10 years ago, in the depths of the financial crisis, Financial Planning columnist Bob Veres wrote this letter to advisors of the future. He urged them to take up the important task of guiding clients through the storm.

Now we know his optimism about the future was warranted. Not only has the U.S. economy recovered from one of the deepest recessions in history; the Chicago Cubs have also managed to win a World Series, too.

How are things out there at the end of the century? Did our government's financial bailout plan work out all right? Have you finally achieved peace in the Middle East? How's it coming with global warming and energy independence? Have the Cubs managed to win a World Series?

I thought you might be interested in what financial advisors are thinking and feeling and saying to their clients during a traumatic time in the world economy. You've probably seen some of these financial train wrecks in history videos on YouTube: the soup lines of the Great Depression, stagflation and oil shocks during the 1970s, Black Monday in 1987 and the tech wreck that started in March of 2000 and was made worse by 9/11 the following year.

I'm a firsthand witness to those last two fiascoes, and now we're going through a third in my short career, something we call the Subprime Crisis (though I'm hoping that future historians will come up with a better name). From where we sit, watching history swirl around us in the usual confusing images, it looks like we're plagued by exactly the same root cause as every other economic catastrophe: a fundamental loss of faith. Our financial systems work pretty well when everybody believes that they'll get their money back when they lend it, that the pieces of paper we call currency really do represent value, that most companies will grow and that the future is generally bright.
But then something scary and unexpected happens, and — like a startled herd of buffalo — members of the general public throw their faith out the window and stampede for the exits. This much you know. But I can tell you, here in the middle of the stampede, the picture isn't pretty. You learn that we humans are, fundamentally, herd animals; we all like to move in the same direction in a crowd, even if the direction appears to be randomly selected, even if the general movement is toward a cliff.

Faces of the financial crisis: Where are they now?
Jamie Dimon and Lloyd Blankfein remain prominent public figures, but many other crisis-era CEOs have kept low profiles over the past decade.

In the planning profession, these periodic meltdowns have been, in retrospect, important times of growth, evolution and learning. After Black Monday, for instance, after larger institutions had sold a failed strategy called "portfolio insurance," our profession evolved from a sales model to advice, and the public discovered the value of an impartial, professional counselor during times of crisis. During the collapse of the tech sector, when large institutional firms were caught offering bogus analyst recommendations and bribing clients with IPO shares, the public learned the virtues of diversification, and the profession rediscovered the value of a full-service financial planning engagement.

Today, at a time when large institutions have sold — out of their own portfolios, often to their retail clients — many billions and perhaps trillions of dollars' worth of mispriced and mislabeled securities, layered with almost unbelievable amounts of leverage, the most honest thing I can say is that we don't know what to expect. We have no idea whether the crisis will play out through a recession, another bout of stagflation or whether suddenly, before anyone has time to react, the markets will soar and reward those investors who kept the faith. After a lost decade of returns, we could be looking at another 10 years of misery or the genesis of the next great bull market.

Not knowing these things is part of our professional responsibility; disclosing that we don't know them is a big part of our integrity.

But here in the center of the whirlwind, amid all the uncertainty and panic, I can report that our profession is realizing that a big part of our value lies in simple things that we normally take for granted. Recently, for example, Carol Van Bruggen volunteered to take phone calls for a TV station her local Sacramento, California, area.

From 4:30 p.m. to 7:00 p.m. eight of us spoke to more than 100 frightened individuals who had no financial advisor they trusted to help them make decisions," she says. "It was an emotional eye opener for me. In my experience, my clients have me talk them through these scary times; someone who knows their needs, resources and goals intimately."

One woman told her: "I was so scared I didn't know if I should sell everything and hide it under a mattress. I now feel I can sleep tonight." Another man asked if the station could bring back this group of advisors every day to talk about finances and help people make decisions. "He felt the whole market would be much calmer if everyone had a financial planner," Van Bruggen says.

Jim Hallett, in Port Angeles, Washington, simply asked his clients to let him do their financial worrying for them. After a particularly bad one-day meltdown, Jim Freeman, who practices in San Diego, sent a message to clients pointing out that most stocks were trading at or close to their 52- week lows. "This is normally not a good time to sell stocks, and is often an excellent time to buy," he told them. Marta Shen, in Atlanta, sent a message to her clients saying, in part, "Although you likely will hear 'the sky is falling' from the media, try to time it out. We have seen this picture before, although with different actors. The ending has always been the same. The market has rewarded investors who stay invested."

Richard Del Monte, in Alamo, California, reports that he has been crafting comforting email messages every time the market has a really bad day. "I can't tell you how much I've learned
about my value to our clients," he says. "The responses are so overwhelmingly positive that I have been really shocked. One client called and said, 'I just wanted to hear your voice."'

Cynthia Meyers, who practices in Sacramento, recognizes that this is a rare opportunity to provide extraordinary value. "These times have put to use those emotional muscles we have spent so many years developing," she says. Everything we have done, and everything we have become, is preparation for times like these.

And this is the powerful part of the message: We don't know what to expect, but we do know the eventual outcome. The markets, the country and the world will get through this, just as we have in the past. And when we are standing where you are, people of the future, we will realize that this present crisis was never as dire as we thought it was.

I suppose it is inevitable that many advisors are questioning their own judgment, asking themselves whether they should have gotten their clients out of harm's way when the first rumblings of the impending avalanche were heard. As always happens, many advisors and pundits are claiming that they called the meltdown before it happened and pulled their clients back to cash. But for all the self-doubt and the bravado, we know, at a deeper level, that we are advisors, not soothsayers; our role is to guide people through the storm, not to predict it.

I have to report that the regulators of our era, and particularly the leaders at the SEC and FINRA, have not only been unhelpful, they have also been obstructive toward our efforts to provide consistent, consumer-oriented services to the investing public. Even now, they seem unwilling or unable to recognize the difference between a fiduciary advisor and the organizations that have evaded fiduciary obligations. Today, whenever we try to erect a profession on the moral high ground, it seems as if these conflict-embracing organizations are our most persistent opponents, and I suspect that, in the future, you will remember them that way.

It takes some courage to predict the future in a letter to people of the future, but as the whirlwind swirls around us, one thing I see clearly is that this turmoil has reinforced the value of a comprehensive financial planning relationship. This seems to be the eternal lesson of these crises. It is still hard to charge for financial planning services, and it is usually more profitable to offer a pure asset management relationship. But whenever the herd stampedes, those who have built their client services on the foundation of a broader engagement pick up market share at the expense of the rest, and the value of the service is reaffirmed.

Know most of all that, here in the storm, we have never stopped believing in the future. We believe that you are there, reading these words, and that the world you live in is fundamentally better and more prosperous than ours. And your prosperous future exists, in part, because we did have the faith to control the stampede and rebuild confidence in our systems, our country, our markets and our future. You have us to thank for that, as we thank those who came before us. (Originally published in Financial Planning Magazine, November 2008)

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