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The Good, the Bad, and the Ugly

Despite the whirlwinds of the industry, think about the positives of the profession.

Veena A. Kutler and Annette F. Simon, 04/23/2009

This monthly series of articles describes the many steps and occasional missteps we have taken in building our financial advisory business, Garnet Group LLC. Currently, Garnet has eight staff members, more than 90 clients, more than $300 million in client net worth under advisement, and offices in Bethesda, Md., and Boston. Veena Kutler, CFA, and Annette Simon, CFP, are the managing principals in the Garnet office in Bethesda.

It's not that long ago--maybe four or five years--that a national survey of job satisfaction found that "financial advisor" was the best job in America. How things have changed! At a recent conference an advisor/presenter told of a client who came in for his annual review and commented that there were two jobs he was very happy not to have--his advisor's and Barack Obama's. Between the bloodbath in the market starting last fall and the likelihood that independent advisors may soon be lumped together with large brokers and regulated by FINRA, tough times seems to understate the current environment in our industry. Many small practices are merging hoping to achieve economies of scale that enable them to survive. Other longtime practitioners have had it and are moving on to new careers. As one fed-up advisor said to us, "There must be a better way to make $90,000 a year!"

Surely every member of our profession has had a moment of doubt, hesitation, perhaps even of utter despair sometime over the past several months. At that point each of us has asked, "Why am I doing this?"

Thinking about the terrible storm we have endured so far and may continue to face, we thought this is a good time to step back and look at our profession--the good, the bad, and the ugly, presented in reverse order.

The Ugly
If we didn't know before 2008 (for those of you who entered the business after the painful 2000-2003 bear market) it's pretty clear now that the very worst thing about being a financial advisor is that the most obvious measure of our success lies entirely outside our control. Of course we're talking about portfolio performance. Yes, we can diversify risk, hedge our bets, and, some believe, make timing decisions that mitigate some of our clients suffering. But, as we have learned again recently, there are times when every asset class loses value, when the lessons of history go right out the window, and what should have been wise, measured counsel appears to be bad advice that we wish we had kept to ourselves or thrown out with those history lessons.

Our own portfolios have shrunk right along with our clients', because we are believers in investing in the same way our clients do, but it's their losses that cause us the most grief and frustration. Many advisors have told us of sleepless nights and medical issues as a result of the crash. Jokes about bankers and brokers jumping out their office windows in 1929 don't seem as far removed anymore from the perspective of our colleagues who are suffering so much pain.

Clients, who we have worked so hard to serve and educate over the years, range from stoic and accepting to angry and unable to understand how this could have happened to them. Why, they ask, didn't they get out of the market before the big drop, or back in November or December before the even-worse declines in January and February? Even after years of explaining in every meeting that we add value by advising them in all areas of their financial lives, not just their investment portfolio, in the short term some clients only see the losses they have incurred. We can point to our long-term and oft-expressed belief in asset allocation and sticking to long-term allocations. Most clients acknowledge that we never claimed to be market-timers and agree that they received the service they expected to get. But a few clients tend to forget the multiple conversations we've had over the years about sticking to an allocation and even the benefits of choosing a less-risky allocation if appropriate. Pointing out that returns are better than the broad equity market is also not reassuring when the client is faced with negative numbers. And who can blame them? Losing money just plain hurts.

We feel lucky that our client base is essentially intact and that we have not lost clients because of performance. During these difficult times we can at least pat ourselves on the back for having successfully and rigorously explained our process both on the investment front and in the entire financial planning arena.

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