Guiding investors through the financial crisis has taken a toll on financial advisers, leading some to question their abilities, rethink their investment strategies and even take up yoga.
An
InvestmentNews survey of more than 2,250 advisers this month found that 45% of respondents said the downturn had shaken their overall confidence in the stock market, and 44% said that their mental and emotional health was adversely affected by repercussions of the economic crisis.
“I got a little shaken when after 11 years of no losses, I lost 15% in 2008,” said Sam Jones, president of All Season Financial Advisors Inc., a Denver firm with $87 million under management. “I started wondering if maybe I'm stupider today than I was 11 years ago.”
Indeed, the last quarter of 2008 was something of a reality check for Thomas Henske, a partner at Lenox Advisors LLC, a New York-based firm with $1.5 billion in assets.
“I think everyone had investment losses, and anyone going through the end of 2008 had to have lost some confidence,” he said. “Everything we knew as normal was out the window, and even the best of the best were shaking their heads, wondering what was happening.”
Among the survey respondents, 19.8% said their physical health suffered as a result of the market events that began unfolding in earnest early last fall, resulting in a 38% decline in the Standard & Poor's 500 stock index last year.
BLAME ON REGULATORS
Mr. Jones, who has long believed “you need to be physically fit to stay mentally fit,” added yoga to his fitness routine to help him cope with the added stress of his job.
Advisers overwhelmingly fell in line on the issue of whether regulators dropped the ball leading up to the problems of last year, which included loose mortgage-lending practices and scant oversight of the risky and complex investment strategies that packaged those mortgages.
A full 85.6% of respondents said their confidence in the regulatory system overseeing the financial services industry had declined.
“I'm always cautious about criticizing regulators, but I was very disappointed, and I think a good deal of the problems we're dealing with now could be laid at the feet of the regulators,” said Harold Evensky, president of Evensky & Katz Wealth Management, a Coral Gables, Fla.-based firm with $500 million under advisement.
The fact that Wall Street's collapse will undoubtedly lead to more oversight only makes the sentiment against regulators worse for Clinton Struthers, owner of Struthers Financial Services, a Midland, Mich.-based firm with $100 million under advisement.
“I'm just pissed off that the [Securities and Exchange Commission] and the [Financial Industry Regulatory Authority Inc.] took the easy way out and just paid attention to the places that were easy to patrol,” he said. “We don't need more regulations; we need better enforcement of the rules that already exist.”
The majority of respondents (53.6%) identified themselves as using fee and commission pricing models, while 34.5% were fee-only, and 11.8% were strictly commission-based.
In terms of age and experience, 40.7% of respondents had 20 or more years of experience, and the largest percentage of respondents (32.8%) were between 46 and 55. Only 6.8% of respondents were under 36.
Assets under advisement of respondents ran to more than $500 million for some advisers, and 42.7% of respondents had more than $50 million under advisement.
Despite the personal impact of the market's turmoil on advisers, the downturn has created opportunities as more skittish investors turn to professionals for advice.
CLIENTS IN MOTION
A majority of respondents (61.2%) said they had gained more clients than they lost over the past year.
“Opportunities like this to pick up market share are few and far between,” said Mr. Henske, who has been focused on attracting clients.
Of those firms that had lost clients, 73.1% of respondents said they had lost fewer than 11 clients. On the other end of the spectrum, 8.2% of respondents said they had lost more than 100 clients.
“Nobody has left me; in fact, it seems like my clients are clinging all the more tightly right now,” said Kathleen Rehl, owner of Rehl Financial Advisors in Land O' Lakes, Fla.
Ms. Rehl, who advises clients on a flat-fee and retainer basis, attributes her success to adherence to a conservative investing strategy tailored to a client base that is mostly in retirement.
She has been managing the stock market downturn by delaying the quarterly re-balancing of accounts, which leaves portfolios with more exposure to more-conservative fixed-income investments.
Almost exactly half of the respondents said their views on buy-and-hold investing versus a more tactical strategy had changed, ac-cording to the survey.
Of those advisers that have become less interested in buy-and-hold investing, 45.5% said they would be quicker to make wholesale changes to client portfolios if they sensed extraordinary market activity.
Of that same group, 37.1% said they would be more willing to sell securities once they reached a price target, and 17.4% said they no longer believed in buy-and-hold investing.
Trying to time the market is still a fool's game to Mr. Evensky, who plans to stick with his core-and-satellite approach to investing.
“I don't know why everyone suddenly thinks they can tactically allocate, but we don't,” he said. “We still believe if you want to make money in the market, you have to be in the damn market, plain and simple.”
E-mail Jeff Benjamin at [email protected].
