Millionaires Say They Were Failed by Advisers in Crisis
I found this data intriguing:
Nearly two-thirds of U.S. millionaires say their investment advisers have failed them during the global recession, according to a recent survey by Spectrem Group.
Only 36% of respondents were pleased with their advisers performance last year. The poll was conducted in November of 750 U.S. households with more than $1 million in net assets.
14% said they’ll increase their use of financial advisers.
U.S. millionaires lost an average 30 percent of their assets last year, with 17 percent of respondents saying their assets declined by 40 percent or more, Spectrem said. The Standard & Poor’s 500 Index dropped 38 percent last year, its worst since 1937, and global stock markets surrendered $28.7 trillion of their value, or 47 percent.
Bloody.
Is it surprising that high-net worth individuals are not being well served by their advisors? It turns out that getting good advice requires more than being able to pay for it — you need to learn who to avoid and who to listen to.
There was a huge pushback to the Apprenticed Investor column that urged people to “own their portfolio” and take responsibility for their trades:
“He who blames others has a long way to go on his journey. He who blames himself is halfway there. He who blames no one has arrived.”
– Chinese proverb
That’s good advice for investors.
If any one wants more active assistance managing their Portfolio or Estate planning, feel free to look here for more info.
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Sources:
Millionaires Say Advisers Failed Them in Crisis, Survey Shows
Christopher Condon
Bloomberg, Jan. 6 2009
http://www.bloomberg.com/apps/news?pid=20601213&sid=aLWAapH3EWx4&
Take Responsibility for Your Stock Losses
Barry Ritholtz
The Street.com, May 2005
http://www.thestreet.com/_rms/comment/barryritholtz/10216943.html
January 9th, 2009 at 11:34 am
awwwww
There there, don’t you worry, mommy’s going to take care of everything.
The world just isn’t safe for the ignorant, know nothing’s anymore. How horribly unfair.
I’m sure there is someone to blame, or law to pass or something. Mabye we can start a war.
January 9th, 2009 at 11:37 am
House prices always go up. Deficits don’t matter. Tax cuts pay for themselves. All sage advice.
Here… here’s some sage to smoke.
January 9th, 2009 at 11:59 am
If the S&P lost 38%, then they did relatively well at -30%, no?
January 9th, 2009 at 12:07 pm
A great quote from William LeFevre:
“The average man desires to be told specifically which stock to buy or sell. He wants to get something for nothing. He does not wish to work.”
January 9th, 2009 at 12:08 pm
Back when I went through the CFP training (for my own education), it was nothing more than a used car salesman gig. (No offense to used car salesmen mind you) “buy and hold” “long term” blah blah blah… worthless crap were the entire industry had became complacent! I have a few millionaire friends (quick money) and they all had the same advice from their advisors. “Buy and hold” and don’t worry about the fluctuations” which soon turned to “don’t sell now, you’ll just lock in your losses.” Which turned to “If you get out now, you getting out at the bottom” which turned to “nows the time to buy”… and it still went down more than 15%! They also ALL had the ridiculous notion that “their” advisor would call them if something started looking bad. NONE of them ever got a call! None of them ever got a suggestion to go short or buy puts, the entire industry is shameful save a few exceptions! (BR for one)
January 9th, 2009 at 12:12 pm
“We all know guys who can recall every baseball stat of their favorite team off the top of their heads; win-loss records, slugging percentage, ERA. Ask them about the top five holdings of their mutual funds , and they look at you as if you have two heads.
Some people spend more time investigating the purchase of a refrigerator than they do a stock or mutual fund. You have to wonder why people put more time into planning their next vacation than they do their retirement. A vacation is two weeks long; a retirement can be 20 years. There is something wrong with the math here.”–BR
No question..
“There was a huge pushback to the Apprenticed Investor column that urged people to “own their portfolio” and take responsibility for their trades:”–BR
it would have been instructive to be able see the ‘comments’ left–w/that post..One can only imagine…
it’s wondrous that People don’t want to understand that if they don’t “‘own their portfolio’, their ‘portfolio will get ‘owned”’..
“U.S. millionaires lost an average 30 percent of their assets last year, with 17 percent of respondents saying their assets declined by 40 percent or more, Spectrem said.”
That’s a real Ripper, amazing actually..
January 9th, 2009 at 12:27 pm
If they lost 30% then shouldn’t the Barron’s commercial about its subscribers now say 2.24 million?
January 9th, 2009 at 12:41 pm
Well this is like saying that every investor has to be a forensic accountant. That includes the widow of the guy who made a pile in his auto parts or construction business, or whatever, or the retired doctor. Say that’s an idea. Everyone needs to be a qualified surgeon before having an operation performed upon them. That way they can just have a local and then give the guy doing the op directions as he goes along. Even better if it’s in a reachable place why not dispense with the surgeon and DIY. You disappoint me BR buying into the simplistic Apprentice Investor fantasies. Of course you have to do some due diligence on your financial advisors and their advice, but that doesn’t you haven’t a right to expect them to be competent and honest.
January 9th, 2009 at 12:46 pm
As a veteran of 22 years in this “business”, this is a hot button issue with me. The financial services “industry” is a joke–don’t you think the endless parade of perma-bullish talking heads on CNBC manage money for someone? Has Jim Paulsen of Wells Fargo ever seen a market he didn’t like?
It’s “be invested all the time, God forbid you should be out of the market on the 14 best days” and all the nonsense that goes with it.
Financial advisors need the market to go up to be successful– they just spend their whole careers talking their books.
For instance, how can anyone still tout the market as a good discounting mechanism? If I hear once more that the market is a buy because it goes up 6 months before the end of the recession, I may get sick. There is no statistically significant substance to that claim.
Taleb is correct–the market is stupid, not smart. Anyone who doesn’t understand that is in big trouble.
For every one Barry Ritholtz who is willing to see the world as it is, rather than how he wants it to be, there are 10,000 “advisors” who won’t or can’t.
Our “industry” has done an incredible disservice to every average American [ and most of the world as well]– frankly, I still hold the buy side as the MOST RESPONSIBLE ACTORS in this cataclysm. I think we are getting off way too easy in the post mortems that I read.
After all, someone had to buy this shit from the banks in the first place. If there were no drug users, the dealers would have to find a new line of work. Maybe they can be financial planners.
I really don’t know how these people can look in the mirror every day.
January 9th, 2009 at 12:48 pm
It’s obvious to anyone who pays atte tion that most financial planners and advisors have no clue what to do.
1) If they did know, they wouldn’t be holding such jobs. They’d be far to wealthy.
2) They offer the same old tired advice: diversify, buy and hold, buy gold, invest globally etc. The good part of this advice is that the client will probably do not much worse than the market averages – and pay a fee for that result.
3) New ideas are ignored. Advisors lack total knowledge of how to hedge an investment. Real risk reduction is ignored.
4) And financial journalist are a big part of the problem. It’s these very advisors – the ones who perform so poorly – who are quoted in newspapers and interviewed on television.
http://blog.mdwoptions.com/options_for_rookies/
January 9th, 2009 at 12:51 pm
This knife cuts both ways.
Using my in-laws as an example, when told over a year ago that GM was in deep trouble and the major banks weren’t all that, they chose to ignore the advice and hang on every word the MSM televised.
They now own a 201K.
January 9th, 2009 at 1:20 pm
“He who blames no one has arrived”
I’d say the Chinese are being very fatalistic. There’s plenty of blame to go around, but for sure, the one most responsible if money was lost in the markets is the one in the mirror. Even if your money got “madoffed”.
January 9th, 2009 at 1:20 pm
ottovbvs Says: January 9th, 2009 at 12:41 pm
just to keep it simple, I, fulsomely, disagree..
http://www.thefreedictionary.com/fulsome
contra to this: “Everyone needs to be a qualified surgeon before having an operation performed upon them.”–hacknyed take, if Peoples Were more clued-in to their own Health-Care, the AMA, et al. would be killing far fewer of them..
I’ve 2-7 that says ol’ otto’s B.S., at today’s rates, would cost 100K+.
January 9th, 2009 at 1:41 pm
A naive investor who just read TBP for the last year and half would at least be even – beating the average of millionaires by 30%!!! (And for free).
January 9th, 2009 at 1:46 pm
Sound advice from Nassim Taleb:
http://www.ritholtz.com/blog/2008/08/rules-for-living-from-nassim-taleb/
January 9th, 2009 at 1:52 pm
Rob, offtopic, but I’m thinking of doing a CFP course. Orientation starts this upcoming Tues…
it is only 11 months long. Buddy of mine who works in that field did the 18 month long one and said I would probably do better with that. I am a commercial truck salesman…(not a car salesman, I build relationships that must last) with little background on investing, other than being the contrarian and having not lost one dime in this current downturn.
Did you find it informative? Also, do you think with this class I could pass the CFP exam? I love economics and investing, but very new to most of the more intricate practices.
January 9th, 2009 at 2:29 pm
ottovbvs wrote: “Well this is like saying that every investor has to be a forensic accountant.”
With good levels of trust – that is, a reasonable expectation that the party on the other end of the transaction is not lying or an outright fraud – one can invest with a reasonable amount of due diligence. When trust is low, the amount of diligence required becomes cost-prohibitive, to the extent that it inhibits activity. In the worst situations, no investment can occur, because the cost of establishing that the other party is trustworthy exceeds the expected income from the investment.
One of the greatest casualties of this mess is trust. Of course, the trust did not just disappear. It was systematically destroyed; persons deliberately chose to violate the rules, because it maximized their personal results. It only takes a relatively small proportion of such violators to destroy all trust, but I’m not at all sure what the actual proportion will turn out to be.
This has happened before, of course; look at the hearings after the Great Depression, and the amount of lying, cheating, and outright fraud they uncovered. The high-trust environment that today’s pack of fraudsters was able to exploit largely developed because of such hearings, and the regulatory and legal environment that was enacted afterward. Similar measures will be needed to start the re-building of trust this time around.
January 9th, 2009 at 2:51 pm
I certainly don’t disagree with the premise that most financial advisers follow portfolio theory like incompetent lemmings, but it would have been impossible for all of those millionaires to have come out without losses, given that they were long in an overvalued market. Not everyone can sell the top. Luckily I came pretty close, so I am now relatively wealthier. That, and rich people are killing themselves. That helps too.
January 9th, 2009 at 3:12 pm
for those of us who are not in the financial services industry, I don’t see how we are suppose to have time to do a lot of due diligence. after all, its not our job. we do have job that entails usually a lot of work (though i can’t speak for the millionaires club) and will take up some where around 45-50 hours a week plus commuting (for those who do). and we usually don’t have lots of extra time (what used to be called spare time). and if one has family with kids that spare time has gone 0. and we have been spanked on wages (that ever popular lets keep expenses in check, which usually means lets see if we can keep wages as low as possible. which has worked so well as we can see. so in today’s new and improved environment we can add no trust. and we can all really wonder why the market isn’t down to 4k.
January 9th, 2009 at 3:56 pm
The generalizations of the “smarter than thou” set here really frustrate me. Another bunch of comments equating “clueless” CFPs to used car salesmen, etc.
I think many of the “financial advisors” alluded to earlier are really Series 7 or Series 65 or Series whatever types (which may also include CFPs).
If you haven’t guessed, I’m a CFP and there is a lot more to what I do than investments. I struggle daily with the buy and hold dogma. I also believe that, ultimately, none of us really know what is going to happen (and how can we these days when, among other things, it seems the rules keep changing).
I don’t deal with the moneyed set. My clients, for the most part, have worked hard, lived modestly and saved their hundreds of thousands of dollars. They are the 72 year old widow, whose “financial advisor” at a major money center bank put 80% of her portfolio in Auction Rate Securities – after telling the guy she would probably need the money soon to buy a place to live near her daughter. Are you saying this woman – who made $24k per year as a school bus attendant – should have known better? Maybe she shouldn’t have any money to invest because she isn’t smart enough to figure out what to do with it on her own?
Or how about the AG Edwards broker who had my 79 year old aunt invested 80% in equities when I took over her account? Of course her IRA account held a variable annuity and he farmed out a portion of another account to a Separate Account Manager. The SAM charged 1% and the broker charged something else on top of that – what for? I could go on and on and on.
Fortunately, I read these blogs and dumped financial stocks in August 2007. I had to jump through hoops to convince a 50 something client to take some equity money off the table in November 2007. Is it possible the millionaires in the study have selective hearing when the market is going up and their clueless advisor suggests selling stocks to balance things out?
Ken – I don’t think trust has been destroyed enough. People will still walk into their local bank, get the cross sell pitch from the friendly teller and end up talking to an insurance salesperson trying to sell a funky annuity that will save them from “taxes”. I’ve seen this happen – the idiot didn’t know there were surrender charges. I didn’t bother to ask what taxes she was saving us from.
Schoolsout – in my opinion the CFP courses and exam will provide you with some general knowledge about personal financial issues beyond investments and will REQUIRE that you have a head for memorization and trivia. I knew nothing of insurance – so that was a tough slog. The intricacies of retirement accounts nearly did me in – but I struggled through. You’ll walk away from the whole thing with a real appreciation for the ridiculousness of our tax system.
If you pass – you can get a job with the likes of Ameriprise, AXA and whoever else is left – THAT’S when the used car salesman training starts.
January 9th, 2009 at 4:04 pm
Thanks
I’ve got a few contacts that would hopefully hire me if/when I pass the exam/whatnot.
I had a pretty good head for memorization/trivia….I’m 26 and still living like I just turned 21. That is what scares me a little. I remember telling my father about 1.5 years ago that the markets were going to crash and the gov’t would start implementing all kinds of spending programs….printing up money and other extremes. He looked at me funny…thought I was over the edge. I put my 401k in a money market account (which seems to be rather safe for the time being…). He finally switched his after losing about 25%…now says I was mostly right and not “over the edge.” I am a big gold/silver guy and hold physical along with some mining stocks and cash. His (and my fear) is I will argue with the professors about the traditional methods used for investing too much, which I probably will. I love to argue and sometimes don’t know when to close my mouth.
Anyways, thanks for the info. Basically going to “feel” this class out come Tuesday.
January 9th, 2009 at 5:10 pm
That’s the problem with financial advisors (and I am one).. You have to be 90% a salesman and 10% a financial guy. Those who are good with investments, risk mitigation, and who actually care about doing well for their clients are drowned out by the boisterous salesman looking for his next kill.
Don’t people realize that when they are being wined and dined they are being wined and dined with their own money? The system doesn’t make sense to me and I can see why the attritian rate is so high. I am getting sick of it, too.. JMHO
January 9th, 2009 at 5:17 pm
I’m amazed that it’s only 66% because in my estimation probably 95% of advisers told their clients to do nothing.
I think the other 29% are in the same camp as those who approve of Bush… just can’t bring themselves to admit they were wrong, or, are simply delusional.
January 9th, 2009 at 5:27 pm
schoolsout,
I know you didn’t ask me but I’ll just throw a few things out for you about the CFP.
If you are really interested in economics and investing as you say, why are you going for the CFP? That’s for financial planning, financial planning and investment advising are NOT one in the same, a concept many still do not understand as there is no national body of standards.
I can have a planning meeting with a client where investment management is never even discussed.
As one that has gone through the CFP modules in prep for taking the final exam this year you may not get what you are looking for. One module is investments, the rest include insurance/estate/income taxes/retirement plans/workplace benefits. I didn’t have too hard a time with the insurance as I was already lic. for that, I found the estate planning section to be pretty difficult though. The rest of the modules are pretty simple, lots of memorization, the investment section is quite basic really, how to amortize bonds, future value of investments, simple options strategies etc. See Mo’s post above.
You sound like you are looking more for CFA. Honestly though, if you aren’t going to manage money right away the best way to learn is places like this, and this is only the cost of your internet connection, not free as someone said above, nothing is free, going through the CFP is going to cost you some money. You won’t learn what you need to pass the exam on the net but the end result is you understand the information all the same.
Lastly, even if you pass the CFP you can’t use the designation, have to work in the industry for 3 years, unless you went to college for this through new programs at some schools.
don’t want to discourage you at all, I think you have a great goal.
For those that don’t manage assets for clients it is also hard to understand career risk that we face. Jeremy Grantham discusses this all the time. He gets it. I started talking to clients about moving to cash long ago or using cash to buy puts, getting them (the average client, I do not work with primarily high net worth, probably similar to you) to do so is harder than many would think. Most people want something for nothing unfortunately, this is described well in the Hard Truths article in the cafe today.
Another example would be when I told all clients to elminate all real estate holdings in the spring of 2006. I lost a handful of clients as real estate ran further because I “wasn’t taking advantage of the opportunities in the market”
I had a client let me go last year that worked at BAC b/c I told them early in the year that they would cut the dividend, I was told I had no idea what I was talking about!
Mark E.
You always make some good points about people learning, problem is most people are too damn lazy to learn and then take the time to UNDERSTAND. They only want to buy lowest and sell highest with no risk, which of course, is not possible.
Finally, BR said:
you need to learn who to avoid and who to listen to.
Well, problem is the only way to do this for lots of these folks is to try it. Most advisors out there aren’t hedge funds who can publish the returns since the returns are different for almost every client based on when changes were made, money was invested etc.
So the best one can do is all due diligence on the reps company and the rep themself (see broker check for example) and ask for references.
As far as who to listen to, well, most people aren’t living and breathing this stuff like we are, or like many people who come to this site. The average person goes to work and comes home to a family and they don’t spend much time at all thinking about things like investment or retirement until something goes wrong.
You only find out who to avoid when an 08 happens b/c I’m sure most of these millionaires were making money during the “bull market” of 03-07, anyone can make money in that type of environment.
Trust is only earned over time and can be ruined by one poor decision, this is the risk that anyone takes when they higher someone else to manage money, and if you are too lazy, or you don’t have time to do it yourself then you should know that going in.
January 9th, 2009 at 5:28 pm
Everyone needs to be a qualified surgeon before having an operation performed upon them.
(ottovbvs 12:41 pm)
But, wouldn’t I do a little due diligence about what doctor to pick, whom I can trust. Every time, I’ve changed my dentist, either because of moving to a new city, or because of insurance, I’ve done due diligence to pick a good doctor. Plus, I know I should floss regularly and brush my teeth before going to bed, and so on. The same would apply to hiring someone for financial advice, especially when the risk of losing it is extremely high. Wouldn’t it be nice to know that certain institutions allow you to set and forget automatic trailing stop losses based on a fixed amount or a percentage. How often people use that or are even advised about that? Growing money is also work, so lack of available time to educate oneself in financial matters is hardly an excuse – as some may be prone to think. Yes, I pay someone to advise me and educate me on such matters, but just like any other profession, the level of competence among the practitioners is not the same, and one who really cares about their money will need to be better educated in some very fundamental concepts and practices. Of course, the more education one has, the better.
January 9th, 2009 at 5:28 pm
Bob A:
I can tell you at my firm, your stat is about right, I’m an outcast where I work for telling people to move to cash, but I can sleep at night.
After all, they would tell me, how are you going to get paid now?
January 9th, 2009 at 5:39 pm
Financial advisors/brokers are salespeople. They generally don’t do original research. Their interest is in making commissions and fees through new accounts or more money from existing “investors”. As salespeople, if they don’t bring in the fees to meet their ever increasing sales quotas, they will be out of a job.
CNBC and the MSM are like symbiotic parasites, they exist because of each other and feed on each other. CNBC/MSM provide the outlet for the financial industry to tout all sorts of claptrap about their past success records, investors buy into these success messages, the salespeople/companies make money and the financial industry pays back CNBC/MSM by buying advertising.
When people understand that CNBC/MSM is NOT on their side, do not provide independent information and that financial advisors/brokers are really salespeople, they will hopefully gain new perspective and ask a lot more questions before following any recommendations.
January 9th, 2009 at 5:49 pm
This funny SNL bit makes you wonder — they could not have put this out after the crash
http://www.ritholtz.com/blog/2009/01/snl-morgan-stanley/
January 9th, 2009 at 6:34 pm
We don’t have any realistic expectation of getting legal remedies from irresponsible financial managers. So trusting someone else with your money is incredibly risky. Hopefully that will change. If not there will be less money managers. It’s that simple.
January 9th, 2009 at 7:52 pm
I would say the rot starts much farther down than advisers and planners. It is true that expecting a retired bus driver to even be able to do due diligence is unrealistic. This is why the “planned 2% inflation” model is so wrong. If the actual target was zero inflation then if you don’t want something for nothing you do not need to invest. A bus driver can save diligently, maybe collect some nominal 1% money rent from a bank, and just spend back out what she earned. But currently the government taxes all holdings at “inflation” percent. You HAVE to invest to keep what you earned. And don’t think it is an accident. Though “they” go on and on about the evils of deflation, the depredations of being forced to go beyond your own knowledge just to keep what you earned are far worse than deflation. Particularly if society isn’t underpinned by debt. Debt is the killer in deflation, but if instead society were allowed to be savings-powered and zero-inflation the bus drivers and cafeteria workers who worked hard, followed the rules, and saved for their future would not be forced to give their money to the wolves on wall street. But the wolves make the rules, don’t expect zero inflation EVER.
January 9th, 2009 at 9:28 pm
Hey Barry,
You know you seem like a straight shooter and I think I like you. I subscribe to your Fusion IQ service also.
But it bothers me when you say give us a call if you want us to manage your money. I emailed you guys three times last year about opening an account and didn’t hear a word. To bad as I still might be a millionaire and you might have a client.
January 9th, 2009 at 10:17 pm
I don’t know what people expect. I can point you to hundred+ million dollar pension funds that lost significant money in this market. If the folks investing $100MM+ can’t get advice that keeps them from losing money, what makes folks think the guy with $100K invested is going to get better advice. As Barry said, blame is for losers. There are some things that you can’t be sure of. People like to talk about the people who were still bullish in the past 6 months to a year, but there were also quite a number of people predicting collapse a couple of years ago. Mutterings about a collapse in the 90s started in about 93 and another group joined in 95. They were just as wrong as the uberbulls. Life is hard dude. Don’t get me wrong, I’ve got my grievances against the financial industry, particularly the idea that most people need heavy exposure to equities. I’m still shocked at the number of people who accepted equity risk to get a 2 or 4% jump when even if they got that bump it wouldn’t have raised their yearly earnings more than 5%. (Person earning $100,000 would need to have $125K-250,000K in investable assets for the extra 2%-4% bump to exceed $5,000 in new income.)
January 10th, 2009 at 2:39 am
There are all sorts of markets in this world. Imagine walking into some local market and demanding free fruit, bread and meat. When answered no free food here, you brandish your gun, and fire a few rounds until you are able to procure what you need as requested. Ok so you go back into the jungle and live your life with what you’ve procured as long as it lasts. What has happened to the market? Well the next time you visit, the fruit bread and meat suppliers that you last met are no longer there. There may be others but they have hired guards. The price is higher then before when you demanded it for free, and unless you want to start a firefight you have to pay the new price whether you like it or not.
Too bad there are so many millionaires out there when there are so many other people with far less.
Perhaps the millionaires should realize you vote guns for oil you get messed up markets.
To think that anything should be sustainable after the last eight years is totally lala fairy peter pansort of dreaming.
If anyone still wonders why the bankers are hoarding…