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Edit Letter May 2010

Even financial advisors don't trust financial companies.

On page 16, you will find a most amazing table. What it shows is simply this: financial advisors we surveyed said they don't trust financial companies — from diversified financial companies to asset managers to hedge funds. While I don't want to rehash my commentary on the data here, I was just so amazed by the response that I had to mention it.

Let's put it this way: if even you guys don't trust financial companies, how do you think your clients feel? And note that our survey (nearly 300 FAs and managers responded) was taken in March of this year — that would be well after the Bear Stearns and Lehman Brothers debacles and one year exactly into a strong stock market rally. Oh, and it's also untainted by the Goldman Sachs fraud suit, which was announced about a month after our survey. As you will see from looking at the table, trust levels have barely budged from the fourth quarter of 2008 — in the proverbial heart of darkness, a time of great fear and loathing.

Worse, another table from the report shows that our financial advisor respondents planned on getting out of cash and into mutual funds, annuities, ETFs and various other financial products. This is a remarkable state of affairs, really. “This is frightening because this is saying that financial advisors may be selling products or asset management services of companies they don't believe in,” says Lisa A. Cohen, head of Momentum Partners, an industry consultant. By the way, Cohen worked for asset managers for 20 or so years in various positions, including on distribution strategies via the advisory channel for a major mutual fund family. “Here's the thing I don't get: how do they [FAs] sleep at night? They are selling all this stuff,” she says. (Full disclosure: Momentum Partners is in a joint venture with Registered Rep. magazine called Rep ThinkTank, a consultancy aimed at helping distributors of financial products and services understand financial advisors.)

In a future issue we're going to investigate this more deeply. In the meantime, I would love to hear what you have to say on this trust issue. Please feel free to call me or email me at the address below. (Confidentiality guaranteed.)

Our Outstanding Advisor Awards

We have been honoring outstanding advisors since 1980. The award has changed since then, as has the business. Thirty years ago, the awards focused on money, to put it bluntly, as in how big the broker's book was. Somewhere over the ensuing three decades, we began to focus more on the charitable contributions of successful advisors. Please turn to page 54 for our award winners. And please note how the editors of Registered Representative magazine (as it was then called; we've since shortened the title to Registered Rep.) really picked one exactly right. Bill Nasgovitz, then president of The Milwaukee Company, landed on our first awards list. Today, Nasgovitz sits atop the Heartland Funds, a family of mutual funds with $3.5 billion in assets. A value investor, Nasgovitz is quoted in our profile of him saying he doesn't like “flashy stocks,” such as Apple. On December 31, 1980, Apple stock closed at $3.86. Today, it's trading at around $259. Well, Bill, nobody is perfect. But, that said, he's had one heck of a career and no doubt has to be the most prescient pick of the “nation's most outstanding brokers” of the last 30 years.

(We thank you for your support. Drop us a line with your comments: 249 W. 17th St., New York, N.Y. 10011-5300. Or email us: [email protected]. Publisher Rich Santos can be reached at [email protected].)

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