I love reading The Mole’s column on CNN Money. Everybody’s got a gimmick, as they say, and his is an undercover financial planner giving his readers a behind-the-scenes look at the financial planning industry.
His latest column describes a recent meeting of financial planners trying to figure out how to handle the recent market volatility. The Mole writes:
I heard much discussion among planners about the “unusual behavior” of today’s market and what to do during “uncertain times.” In reality, what’s going on now is pretty common; the recent five-year run of steady gains was the unusual time.
Despite Standard & Poor’s recent report about a 70-year high in market volatility, my understanding is that the last five years of steady gains are more out of the norm than the recent market volatility.
He continues:
From this meeting it was clear to me that some financial advisers chase performance just as much as individual investors do. They load you up on stocks or funds that are doing well and tell you to sell when the tables start to turn. Often these planners are simply following your emotionally driven pleas.
But a financial planner should rein in your emotions, not react to them, and help you stay the course in both up and down markets.
Well said.
Walter Updegrave Defends an Adviser
Walter Updegrave writes “Ask the Expert” at CNN Money. A reader asked whether he should stick with an adviser that didn’t pull his money out in October 2007 before the market started dropping. Updegrave responds:
First, let me say that it’s not at all clear to me that your adviser has done anything wrong. Frankly, I’m more suspicious when advisers are eager to dump existing investments and buy into new ones. After all, making more buy and sell recommendations is usually in the adviser’s financial interest, since more moves can generate more commissions, or at least make it appear that the adviser is on top of the situation.
So the fact that your adviser didn’t play yes-man to your urge to move into more conservative investments doesn’t automatically suggest to me that he’s incompetent or lazy. Quite the opposite. As long as you were going into 2008 with a reasonably diversified portfolio that made sense given your particular situation, then it seems reasonable to me that he would want to caution you against making any big moves.
Well said. And he took some heat in his comments for saying it.
Don’t Use an Adviser that Churns Your Account
The following is a topic for another day but it’s worth a brief mention. Updegrave mentions that some advisers make trades in their clients’ accounts to generate more commissions and earn more money. It’s called “churning” and it’s a dishonest tactic that some advisers and brokers use to enrich themselves at the expense of their clients.
If your adviser churns in your account, even once, it’s time to find a new adviser. Preferably a fee-only adviser that doesn’t have any incentive to churn your account.