Advisers will triumph over disappointment

It isn’t surprising that, as reported in InvestmentNews last week, many financial planners and advisers are feeling stressed and depressed. They are holding the hands of their clients through the worst stock market collapse since the Great Depression.

Many think that they have failed their clients because their clients have suffered substantial losses.

Financial planners and in-vestment advisers are forced to acknowledge that despite their best efforts and all their training, they haven’t been able to insulate their clients from the impact of the market crash.

For some clients — those for whom investments are the main source of income, and especially those who are retired — this market decline, if not soon reversed, will lower living standards permanently.

In addition, while each client is dealing with the deterioration of his or her own fi-nancial circumstances, planners themselves are sharing the effects of the market crash on their own financial well-being.

Many advisers no doubt have invested their own assets in many of the same funds and asset classes as their clients and have suffered similar losses.

These are tremendous professional and psychological burdens that advisers shouldn’t attempt to bear alone.

As the article suggested, now is the time for planners and advisers to reach out to peers and expand their network of colleagues to discuss the common burdens each is carrying.

They can help each other accept that the market meltdown was an almost unprecedented event, beyond their control. Even portfolios that were diversified across many asset classes — domestic and international stocks, bonds, cash, real estate, even many hedge funds — have suffered.

Only those who were extremely cautious and moved heavily to cash equivalents as the market moved toward its peak, probably in the face of considerable resistance, would have been able to protect their clients.

Many advisers are no doubt looking back and saying to themselves: “I should have seen it coming.” But hindsight is always 20/20.

Few of those who recognized the bubble emerging in housing would have anticipated the depth of the crisis that its bursting precipitated.

Almost most no one in the financial sector understood how many subprime, and even fraudulent, mortgages were being written and packaged into mortgage backed securities, and how many credit default swaps were being sold against those and other derivative securities.

That is, few realized how far the cancer of the mortgage bubble had eaten into the sinew of the financial system.

Advisers should take some comfort in the fact that they gave clients their best advice, which was based on academic research and strategies that worked during past crises.

Unfortunately, as John Maynard Keynes said, history repeats itself, but not exactly. This time, the bursting of the housing-spawned market bubble was different from the bursting of any previous bubble.

As a result, pretty much any advice given to investors was inadequate to insulate them from the impact of the crisis.

Advisers should also take comfort in the knowledge that they have gained from dealing with this crisis. It will make them better advisers.

Two other lessons: First, the economy and the financial markets will recover in the coming months and years. This will give most clients a chance to recover at least part of their losses.

Second, don’t allow disappointment and stress to rule. This, too, shall pass, and the important work you do will continue.