Monday Morning: Easy livin’ over, advisers need response

“Summertime, and the livin’ is easy.” Those are Ira Gershwin’s immortal words from “Porgy and Bess.”

The financial planning and investment advisory business had a long, warm, comfortable summer in the 1990s. The living was easy, and that made a lot of advisers and a lot of clients lazy.

Now the investment winter is almost three years old, and the living is tougher. But in winter, the strong adapt, survive and come back stronger.

So it is with financial advisers. The strong have survived, are adapting and will emerge stronger. They are changing the services they offer their clients in an effort to overcome the loss of trust in the markets, mutual funds and, to some extent, the advisers themselves.

That’s the impression gained from conversations with executives and planners at the DATAlynx conference in Denver last week.

Rebuilding that trust was mentioned as “job one” by most advisers I spoke to during the conference.

They are going to have to work hard to regain that trust.

According to Skip Schweiss, vice president of the Denver company, that’s also what he and his executives are hearing and seeing.

“The issue [of the problems in the industry] came up in our advisory board meeting on Saturday,” he said. As a starting point, Mr. Schweiss said, the one thing he remembers from the late ’90s is that “the planners were shedding the planning work and going straight to asset management.

“Asset management was a higher-margin business, there were greater economies of scale. The market was going straight up, so the clients were thrilled, and that brought in more business.”

But, said Mr. Schweiss, “I always had this unease: What was going to happen when the performance wasn’t there, when you don’t have that leg to stand on?

“What I heard the other day is that there is a shift back to a more complete array of services. Planners are doing insurance planning and estate planning. They’re talking to their clients about their trusts. One of our guys has even become a mortgage origination broker for his clients. He was able to make a little money from that and to provide his clients with another service that had nothing to do with how the market is performing.

“I think that’s what advisers are going to have to do to earn the trust of their clients again. If they do that, the quality of the services as judged by the client is much more in their control than the whims of the marketplace.”

Most of the advisers will still be doing asset management, but they will re-emphasize the other aspects of financial planning that many had played down during the bull market.

Of course, most advisers thought during the bull market that they were just giving the clients what they wanted when they focused on investment at the expense of insurance, or retirement, or trust advice. These seemed pretty dull subjects of low importance to clients when the market was surging ahead at 20%-plus a year.

Playing the market, picking the best-performing stocks or mutual funds, was much more exciting. How many clients would want to go to a cocktail party and boast about the exciting new insurance policy they bought, or trust they set up?

But many clients now blame their advisers for their poor investment results. They blame the advisers for not persuading them to have more balance in their portfolios. They blame the advisers for not keeping them out of the hottest mutual funds – the ones they insisted on buying. Now they don’t trust the advisers. And to a certain extent, they are right. Advisers often took the path of least resistance.

To restore the trust, advisers have to get back to basics and, as Mr. Schweiss says, emphasize the other important services they offer. They must also educate clients more about all of the services, including investments.

That is, advisers must teach as well as advise. They must take some of the mystery out of their services so the client has a better understanding of what he or she is paying for. What is a trust? What is a charitable remainder trust? What is the difference between whole-life and term insurance? What is an umbrella policy? What is a growth stock? How does it differ from a value stock? What’s an exchange-traded fund, and should I invest in it?

Taking some of the mystery out of the products won’t encourage clients to try to do financial planning themselves. It will merely give them confidence that the planner doesn’t have something up their sleeve. It will rebuild trust.

Mike Clowes is editorial director of InvestmentNews and sister publication Pension & Investments.