What Will You Do Differently?

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Nov 28, 2008 2:26 pm

What have you guys learned through this financial mess that you will now do differently?  If you have a new client come to you with $1MM, would you do the same thing with it that you would have done a year or two ago, or something different?

Nov 28, 2008 2:32 pm

Different. I would have used Index Annuities instead of Variable Annuities. 

Nov 28, 2008 4:07 pm

I would do business exactly the same way.

Nov 28, 2008 5:26 pm

I use to give my clients that are age 50 and up that are investing for retirement income the option of using Mutual Funds or a VA with some type of living benefit.  Now the age 50 and up crowd will  get a mandatory VA that will at least guarantee their basic retirement income needs

Nov 28, 2008 6:33 pm

Yeah, I'm definitely in the "no more risk than necessary to achieve a goal" mode now.  If we can do that with a VA, I'm going that direction from here on out.  

Nov 28, 2008 7:41 pm

Are you guys reading your own posts?  Now that the market is down 40%, you are going to install a VA component to your business?  Isn't that offering a gaurantee when it is most likely not to have value?  This is not a statement for or against any specific investment.  If this bear market is going to change the way you do business, then you are doing something wrong, just like investors who pull their money at bottoms and put it back in at tops.  You are making an emotional decision, and emotional decisions in this business are generally the wrong decisions.

 
You should have a plan for good and bad markets.  You should have this plan in place before the market changes.  Buy and hold, tactical, strategic, technical, fundamental... whatever.  Have a plan and stick to it.  Realize it will not be successful all the time.  Explain this to clients.  Remind them of this conversation when the market changes.  Changing the way you do business after the market is down 40% is most likely to have you explaining to clients why after the market turns around their account is still underwater.
Nov 28, 2008 8:13 pm

Primo, I think the theme of this thread is that most of us (me included) never contemplated a situation where ALL asset classes are down in tandem, with equities leading the way at close to 50% from peak to trough.

Now that we all see that it IS possible, there are some things that we should probably do differently in the future.

For me, the portfolios that I considered "conservative" turned out to be anything but. I have 30/70 portfolios down 15-20%. That's insane. Portfolios that were designed to almost NEVER lose value in a bear market. This bear has been NOTHING like the bear of 00-02, where my backtested portfolios did just fine. Shame on me. I was short-sighted, and I have learned from it.



In the future, I will do a better job of explaining to my clients EXACTLY what will happen and what I will do WHEN their portfolio goes down. I will explain WHY we have an "ultra-safe" principle-protection "bucket". I have always done this, but I was not as explicit with clients about exactly how the portfolio was designed as I should have been. Now I am having to go back and explain "this is why we have some MMKT and Govies, and CD's, and fixed annuities. Don'y look at your entire portfolio, look at the "buckets". We're not withdrawing from the equity bucket anytime soon, so don't worry about those being down 40%."



To summarize, this market caught a lot of people by surprise. Not the bear itself, but how it unfolded, how the asset classes reacted, and how we can adjust in the future. But I don't think anyone is suggesting getting all conservative at the bottom of this bear out of some sort of fear.

Nov 28, 2008 9:36 pm
B24:

Primo, I think the theme of this thread is that most of us (me included)(count me in as well) never contemplated a situation where ALL asset classes are down in tandem,(cash, t-bills, managed futures are up this year, what you are saying is bonds down as well as equities.  There are more investment possibilities) with equities leading the way at close to 50% from peak to trough.
Now that we all see that it IS possible,(why on earth could you not believe that stocks and bonds could be down at the same time.  Stocks have been down before.  Bonds have been down before.  Just happened at the same time.) there are some things that we should probably do differently in the future. (Which is what everyone said after 00-02.  Next time could be different than this time, then what?)
For me, the portfolios that I considered "conservative" turned out to be anything but. I have 30/70 portfolios down 15-20%. That's insane. Portfolios that were designed to almost NEVER lose value in a bear market.(There are only two assets that will not lose money in a bear market, cash (n/i time value or inflation) and inverse funds.  And depending on your timing, these can hurt you also.  Everything else is fair game) This bear has been NOTHING like the bear of 00-02, (which was nothing like the previous bear, which was nothing like the bear before that....)where my backtested (backtesting does not gaurantee future results.  If it did, everyone with a 10 year time frame would be invested in small caps as they historically backtest with the highest returns)portfolios did just fine. Shame on me. I was short-sighted, and I have learned from it.

In the future, I will do a better job of explaining to my clients EXACTLY(this is not what I said.  Every asset class has volatility, explain that to a client.  Makes explaining what is happening now easier when the time comes) what will happen and what I will do WHEN(perfectly worded) their portfolio goes down. I will explain WHY we have an "ultra-safe" principle-protection "bucket". I have always done this, but I was not as explicit with clients about exactly how the portfolio was designed as I should have been.(Most clients do not need to know how the engine works, they just want to know they have a competant mechanic) Now I am having to go back and explain "this is why we have some MMKT and Govies, and CD's, and fixed annuities. Don'y look at your entire portfolio, look at the "buckets". We're not withdrawing from the equity bucket anytime soon, so don't worry about those being down 40%."

To summarize, this market caught a lot of people by surprise. Not the bear itself, but how it unfolded, how the asset classes reacted, and how we can adjust in the future.(This is what does not make sense to me.  You say this time was different than the last time, but are implying that changes made now will be more successful next time.  What if next time is different than this time?) But I don't think anyone is suggesting getting all conservative at the bottom of this bear out of some sort of fear(The two post prior to mine said this pretty clearly) .

Nov 28, 2008 11:55 pm

Primo, I read some great articles this weekend regarding the past crashes. After '87 everyone was going to do things "differently".  People would tighten their belts going forward, all the yuppies would look at money differently, and people would never forget that crash. 

Well, then the 90s came around and pretty soon everyone forgot what they learned in '87. 

Speed up to 2001-2003, and people learned a few lessons about that crash.  People again said they'd never forget that crash. 

With the magic of hindsight, we can all look back to these crashes and say: this is what we should have done differently. 

Here's the thing though, other than moving to treasuries/cash, shorting the market, and selling options, there wasn't much you could do this time. 

I hear you though Primo.  We may never experience anything like this again in our lifetime.  I have a hard time beleiving that though, the last 15 years has been pretty crazy, I can't imagine things changing too much.  But I can't see how taking no more risk than necessary to achieve a goal is a bad thing for myself OR my clients. 

I'm not talking about becoming more conservative in a bear market, and I don't think any of us are saying that.  I think we are merely altering the way we think about risk. 

Remember LTCM?  They used to put the probabilities of how much you could lose in any given year, on their client's statements.  Well, then 1997 rolled around, and they learned a good lesson about risk.  I think we've all learned a similar lesson. 

Nov 29, 2008 12:04 am

I will continue to get to know and analyze each client's needs, risk tolerance, current assets,  income and need for additional future income, family and estate planning situations, among many other factors. Once that obligation has been fulfilled, I will continue to advise them to consider the solution that I believe best suits their needs. Short story long..... I'd do the exact same thing.

Nov 29, 2008 12:25 am

But I can't see how taking no more risk than necessary to achieve a goal is a bad thing for myself OR my clients. 

 
I do not disagree with this statement whatsoever.  You said in your first post "now".  I believe that this statement was true "before" as well, therefore, I will not be changing the way I do business due to this bear market. 
Nov 29, 2008 12:27 am

Oh, and I'm definitely cutting back on closed-ends and bonds that tender quarterly.  

Nov 29, 2008 1:02 am

My investing principals haven't changed much -- buy and hold for the long term, good bonds, blue chip stocks, vanilla mutual fund asset allocation. No aggressive investments. My best clients are down 20 or 25 percent, but they're not panicking and neither am I. .... I'm not saying this is the best way to do it, but my office isn't set up to do anything different and I'm not as learned as many of you in more complex hedging or option strategies. So I'm going to keep sticking to the basics. I haven't blown anybody up and I feel good about that.
As far as changes, I am much stronger in my opinions. My firm has been telling us for a year that the sun will come up tomorrow and I don't believe much of what they say anymore. Heck, my firm is still putting buys on bank stocks even today as C basically goes bankrupt and RBS gets taken over by the British governnment.
I tell clients that the economic situation is far worse than the people in Washington or Wall Street will admit.  I tell them the recession will be long. I tell them the bankers screwed us. I tell them inflation or deflation is a very real possibility. Maybe even both, one after the other.  I tell them if they are retired, they won't be able to take as much income. I tell them if they are working they better invest more. I tell them that the safest place to invest is with a diversified mix of good, U.S. equities and bonds. Maybe I'm wrong, but that's my reading of the situation, and I have learned that clients want that from me.







Nov 29, 2008 9:06 am
YHWY:

I will continue to get to know and analyze each client's needs, risk tolerance, current assets,  income and need for additional future income, family and estate planning situations, among many other factors. Once that obligation has been fulfilled, I will continue to advise them to consider the solution that I believe best suits their needs. Short story long..... I'd do the exact same thing.



That is so sweet.

Nov 29, 2008 9:29 am
Primo:
B24:

Primo, I think the theme of this thread is that most of us (me included)(count me in as well) never contemplated a situation where ALL asset classes are down in tandem,(cash, t-bills, managed futures are up this year, what you are saying is bonds down as well as equities. There are more investment possibilities) with equities leading the way at close to 50% from peak to trough. Now that we all see that it IS possible,(why on earth could you not believe that stocks and bonds could be down at the same time. Stocks have been down before. Bonds have been down before. Just happened at the same time.) there are some things that we should probably do differently in the future. (Which is what everyone said after 00-02. Next time could be different than this time, then what?)For me, the portfolios that I considered "conservative" turned out to be anything but. I have 30/70 portfolios down 15-20%. That's insane. Portfolios that were designed to almost NEVER lose value in a bear market.(There are only two assets that will not lose money in a bear market, cash (n/i time value or inflation) and inverse funds. And depending on your timing, these can hurt you also. Everything else is fair game) This bear has been NOTHING like the bear of 00-02, (which was nothing like the previous bear, which was nothing like the bear before that....)where my backtested (backtesting does not gaurantee future results. If it did, everyone with a 10 year time frame would be invested in small caps as they historically backtest with the highest returns)portfolios did just fine. Shame on me. I was short-sighted, and I have learned from it. In the future, I will do a better job of explaining to my clients EXACTLY(this is not what I said. Every asset class has volatility, explain that to a client. Makes explaining what is happening now easier when the time comes) what will happen and what I will do WHEN(perfectly worded) their portfolio goes down. I will explain WHY we have an "ultra-safe" principle-protection "bucket". I have always done this, but I was not as explicit with clients about exactly how the portfolio was designed as I should have been.(Most clients do not need to know how the engine works, they just want to know they have a competant mechanic) Now I am having to go back and explain "this is why we have some MMKT and Govies, and CD's, and fixed annuities. Don'y look at your entire portfolio, look at the "buckets". We're not withdrawing from the equity bucket anytime soon, so don't worry about those being down 40%." To summarize, this market caught a lot of people by surprise. Not the bear itself, but how it unfolded, how the asset classes reacted, and how we can adjust in the future.(This is what does not make sense to me. You say this time was different than the last time, but are implying that changes made now will be more successful next time. What if next time is different than this time?) But I don't think anyone is suggesting getting all conservative at the bottom of this bear out of some sort of fear(The two post prior to mine said this pretty clearly) .





Primo, I see what you're saying. However, let's agree that MOST advisors are never going to use inverse funds (I know many do, but let's not argue over the fact that most won't). And also, it was NOT just stocks and bonds that are down. Real Estate is down, Commodities are down, Emerging Markets are down, international bonds hung in there most of the way, gold has not provided a hedge, etc. So it's more than just "stocks and bonds" that are down. So simply guessing that nearly every asset class would get crushed at the same time is a stretch.



And I understand that back-testing is not infallible. But how else to you prove to yourself what each asset class does? It doesn't happen by magic. Someone recorded HISTORICAL results of what markets have done to prove which asset classes do what. And I generally backtest 20 years, not 10 (and longer if the investments have history). And I realize 20 years still does not do it. And yes, EVERY time is different. I am not saying some new-fangled strategy will "win" next time. I am saying that each time we have a bear market, we gather new evidence and garner a new experience that builds upon the last. Did you just come out of the womb "knowing" how to use managed futures? C'mon. You learned it from experience, or from someone else that learned it from experience.



So what do YOU suggest everyone do? Learn NOTHING from this experience? Maybe some people learned that their "safe" portolios were not as "safe" as they thought. Nothing wrong with admitting that and committing to working on a better long-term solution.



And regardless of how I worded it, I am not saying changes made now will be more successful next time. In fact, what I am doing right now may not necessarily be what I am going to do once we climb out of this thing.

Nov 29, 2008 10:41 am

So what do YOU suggest everyone do? Learn NOTHING from this experience? Maybe some people learned that their "safe" portolios were not as "safe" as they thought. Nothing wrong with admitting that and committing to working on a better long-term solution.

 
I suggest that everyone have a plan based on whatever you personally base your plan on.  I suggest that you explain as simply as possible to your clients what the plan is.  I suggest that you lower expectations right up front.  I suggest that during good times you celebrate with your clients while reminding them that this will not always be the case.  I suggest that during bad times, you remind the client of the plan and when you told them it would not always be good.  I think learning from experience is a great thing, but that making dramatic changes because of market action is ill advised and often ill timed.
 
On a side note, using inverse positions is not common and difficult to do.  If you think it sucks for you and a client to be down on a long position, it is twice as hard when you are down on a short position.  Most clients and advisors are not wired to tolerate being down when the "market" is up.
Nov 29, 2008 11:00 am
Primo:

So what do YOU suggest everyone do? Learn NOTHING from this experience? Maybe some people learned that their "safe" portolios were not as "safe" as they thought. Nothing wrong with admitting that and committing to working on a better long-term solution.

 
I suggest that everyone have a plan based on whatever you personally base your plan on.  I suggest that you explain as simply as possible to your clients what the plan is.  I suggest that you lower expectations right up front.  I suggest that during good times you celebrate with your clients while reminding them that this will not always be the case.  I suggest that during bad times, you remind the client of the plan and when you told them it would not always be good.  I think learning from experience is a great thing, but that making dramatic changes because of market action is ill advised and often ill timed.
 
On a side note, using inverse positions is not common and difficult to do.  If you think it sucks for you and a client to be down on a long position, it is twice as hard when you are down on a short position.  Most clients and advisors are not wired to tolerate being down when the "market" is up.



Where does it say that we have to use equities to help our clients?

Nov 29, 2008 11:10 am
Hank Moody:
Primo:

So what do YOU suggest everyone do? Learn NOTHING from this experience? Maybe some people learned that their "safe" portolios were not as "safe" as they thought. Nothing wrong with admitting that and committing to working on a better long-term solution.

 
I suggest that everyone have a plan based on whatever you personally base your plan on.  I suggest that you explain as simply as possible to your clients what the plan is.  I suggest that you lower expectations right up front.  I suggest that during good times you celebrate with your clients while reminding them that this will not always be the case.  I suggest that during bad times, you remind the client of the plan and when you told them it would not always be good.  I think learning from experience is a great thing, but that making dramatic changes because of market action is ill advised and often ill timed.
 
On a side note, using inverse positions is not common and difficult to do.  If you think it sucks for you and a client to be down on a long position, it is twice as hard when you are down on a short position.  Most clients and advisors are not wired to tolerate being down when the "market" is up.



Where does it say that we have to use equities to help our clients?

 
 
Where in this post did I say you have to use equities to help your clients?
Nov 29, 2008 11:20 am
Primo:
Hank Moody:
Primo:

So what do YOU suggest everyone do? Learn NOTHING from this experience? Maybe some people learned that their "safe" portolios were not as "safe" as they thought. Nothing wrong with admitting that and committing to working on a better long-term solution.

 
I suggest that everyone have a plan based on whatever you personally base your plan on.  I suggest that you explain as simply as possible to your clients what the plan is.  I suggest that you lower expectations right up front.  I suggest that during good times you celebrate with your clients while reminding them that this will not always be the case.  I suggest that during bad times, you remind the client of the plan and when you told them it would not always be good.  I think learning from experience is a great thing, but that making dramatic changes because of market action is ill advised and often ill timed.
 
On a side note, using inverse positions is not common and difficult to do.  If you think it sucks for you and a client to be down on a long position, it is twice as hard when you are down on a short position.  Most clients and advisors are not wired to tolerate being down when the "market" is up.



Where does it say that we have to use equities to help our clients?

 
 
Where in this post did I say you have to use equities to help your clients?
Nov 29, 2008 11:26 am
Hank Moody:
Primo:
Hank Moody:

[quote=Primo]So what do YOU suggest everyone do? Learn NOTHING from this experience? Maybe some people learned that their "safe" portolios were not as "safe" as they thought. Nothing wrong with admitting that and committing to working on a better long-term solution.

 
I suggest that everyone have a plan based on whatever you personally base your plan on.  I suggest that you explain as simply as possible to your clients what the plan is.  I suggest that you lower expectations right up front.  I suggest that during good times you celebrate with your clients while reminding them that this will not always be the case.  Equities are the only investment that has good times and bad times?   This statement could apply to EIA's, muni's, CD's, real estate......I suggest that during bad times, you remind the client of the plan and when you told them it would not always be good.  I think learning from experience is a great thing, but that making dramatic changes because of market action This statement also could apply to EIA's, muni's... you get the point. is ill advised and often ill timed.
 
On a side note, using inverse positions is not common and difficult to do.  If you think it sucks for you and a client to be down on a long position,Equities are the only investment you can be long in?  Try harder Bobby. it is twice as hard when you are down on a short position.  Equities are the only investment you can be short in, try harder Bobby. Most clients and advisors are not wired to tolerate being down when the "market" Quotation marks used to imply whatever "market" you are participating in is up.



Where does it say that we have to use equities to help our clients?

 
 
Where in this post did I say you have to use equities to help your clients?

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