Matson: Advisers often play along with bad strategy to keep clients happy

FEB 05, 2012
Spooked investors may be unwilling to invest in the stock market, but many financial advisers aren't trying to change their clients' thinking on the subject. Indeed, some advisers are happy to play along, keeping clients in cash or chasing trends such as gold, one adviser said. “My experience in watching a lot of advisers is, they will do what the client tells them, even if it is imprudent, just to keep the client,” said Mark Matson, chief executive of Matson Money Inc., an investment advisory firm that manages just over $3.1 billion.

ADVISERS “PANICKED'

After the 2008 market crash, “what I saw most advisers do was co-sign dysfunctionality and go to cash,” he said. Mr. Matson thinks that advisers “panicked” right along with their clients after the market crash that brought market indicators down about 50% between September 2007 and March 2009. He has written a book promoting a return to asset allocation with regular re-balancing, and is launching a television program on public television to educate people about the issue, which he said is a problem for advisers almost as much as for investors. Over the long run, most investors need to allocate some of their portfolio to stocks or they will miss out on market gains, Mr. Matson said. Asset allocation “sounds really simple and easy to understand, but it is almost impossible to do” for both investors and advisers, he said. “It is because of emotions, instinct and perception biases, multiplied by the media,” Mr. Matson said. “I had one adviser with $25 million who called us in March of 2009 and said, "This is Armageddon; we have to go to cash,'” he said. “I called it market timing.” Lately, the same mentality has advisers overweighting their clients in gold, trying to make money on the precious metal's surge, Mr. Matson said. “It is like tech stocks in 1998, when they took off for four years in a row” before they ended up crashing, he said. “So many people are trying to prognosticate,” Mr. Matson said. And many investors still are stuck in cash, with advisers who are fearful of pushing too hard to return to the market. “The client said, "If you don't move me to cash, I'll leave,'” Mr. Matson said. “But the investor is the one who gets hurt.” [email protected]

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