Placations for a Financial Crisis – The Planner’s Playbook

August 30, 2007 1:37 pm

There has been a series of financial planners on CNBC and other media outlets that have been discussing the recent market turmoil’s effect on clients. Specifically, there has been interest in whether or not clients have been calling and freaking out. This morning on CNBC, Alice Finn a financial planner from Ballentine, Finn & Company was interviewed. PlacationsShe commented (as has been the case with most planners), “Clients have not called, they are not as concerned and the phone has not been ringing. Clients are investing for the long haul and they are well diversified and have not called since they are comfortable…”.

She went on to discuss the difficulties of trying to time the market. Essentially, Ms. Finn contends that no one can time the market, as you will have to be right twice in order to succeed; when to get out and when to get back in. That seems to be a fair assessment.

Furthermore, she went on to talk about diversification and investing for the long haul and all of the other catch phrases that planners use. I too am fond of many of these. But, I contend that the reason clients have not been ringing the phone is twofold:

1) Summer Vacations
2) Statements have not gone out for August yet

These “phrases” are an excellent means to pacify clients during short corrections that bounce back quickly. If you read between the lines though, these are nothing more than standard comments by advisors that can be interpreted as; we are not doing anything to protect your account.

I am sorry to say that hollow phrases are not going to help if the market really declines. The truth is that diversification is fine through quick and shallow corrections, but when we see a protracted slide, there is nothing better than cash. Unfortunately, advisors who continue to believe that a “sit on the hands” mentality (albeit with crossed fingers) will allow for clients to weather major storms are plain ignorant. This is not to say that this is any time to panic. Nor is it a forecast that we are in for a major downturn. Rather, it is a lesson that we should all look forward to what is ahead in order to make appropriate investment decisions.

In this market condition, action is required to ensure that portfolios are allocation away from the areas that may be in for additional downside risk. Yet, time and time again we have seen comments from experts that look to provide comfort over action. Here are some of my favorite axioms that have been bantered around during market turmoil that are meant to mollify clients:

The Financial Planner’s “Placations for a Financial Crisis” :

    1) Buy on the DIP
    2) Diversification is key
    3) We are in it for the long haul
    4) Do not listen to the noise
    5) There is plenty of liquidly in the markets
    6) Great time to dollar cost average
    7) The situation is contained
    8 ) They’re not losses until you sell
    9) Market Timing does not work
    10) The 25 Year history of the S&P 500 shows….
    11) Now is the time to buy, not sell
    12) Only 5 days over the past 20 provided 80% of returns
    13) This is healthy for the markets
    14) Do not let emotions control your decisions
    15) The S&P 500 has never had a negative 20 year return

Be smart, do what you know to be right from all of the information that is available and resist the urge to just sit and hope for the best. Re-evaluate your allocation, reassess the risk and act.

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