I stand by what I said about cashing out being a sensible strategy for the GFC. To say that it's unreasonable to expect FA's to have understood what was happening is simply unrealistic imo. Many of us who have no formal qualifications in finance didn't have any trouble appreciating the seriousness of the situation. There were daily reports on most media about the deterioration in the American, British and European economies every day from the collapse of Lehman's on.
I would like to correct this on my experiences in the events leading to the GFC and the aftermaths.
While I'm not defending those financial planners, I think it is inappropriate to lay the blame on them for failing to predict the GFC and did not advise their clients to cash out just before the market crash. This is despite to the number of "warnings" out there.
The signs may have been obvious to those who have been "listening" to the right sources, but certainly not if most financial planners, or even the general public, have been listening to the mainstream news. The potential crash was actively made understated prior to the events. This is clearly evident, the subprime crash would not affect global markets, blah blah blah, etc. Mainstream news were largely biased in being extremely optimistic about the future (and still is!) and to most people, they would have never foresee the crash with any certainty.
Exceptions of course, if their financial advisors were the only few economists/bloggers, who predicted the crisis and actually did GAVE FIRM ADVISE to get out on a particular date or else.
However, very few financial planners would have the ability to take heed to those advises (let along actually FIND THEM) and then actually advise their clients to take actions. My opinion is that it's quite unfair to blame them for their incompetence with the amount of misinformation and massive amount of media biases out there. This along with all other corporate requirement of selling approved product lists, maintaining sales target, etc, etc, would have certainly hinder them from making such good advises.
At the end, it may have been obvious to some of us, but it certainly wasn't to a lot of people including ultra rich investors / high profile economists. Some of them never saw it coming. How do you expect a common financial adviser to do the same?
How many fee for service advisers do I know who recommended anything?
None. I don't know any fee for service advisers. I have known several commission-focused advisers.
I've already posted in another thread stating the fee for service advisers will eventually be made compulsory by 2012. Hopefully that would improve the "bias" problem by slightly.
Had the funds been moved to cash early in the downturn, and when interest rates were still quite reasonable (7 - 8%), the capital would have been largely protected, and the funds moved gradually back to equities as the recovery became evident.
As I said previously, no one could have, with absolutely certainly, predicted the timing of the crash, or the recovery, and the magnitude of it. It's certainly not the role of a financial adviser to make such predictions. They certainly wouldn't do it either even if they have been sourcing from the right information. Fear of litigations if their predictions were not correct would have deter more advisers from making such predictions.
This is as simple as, if my financial advisers asked me to cash out just before the crash, but buy back in half way down and suffered lost, then should I held my adviser's liable for misleading me? Yes, in the current laws, you can and have been done. This probably even true when the lost of income/profit opportunities is extremely large.
I haven't suggested at all that advisers should adopt day trading strategies for their clients. Simply the protection of capital for people within a few years of retirement.
That I agree, and my understanding of what financial advisers do is that they generally recommend asset allocation for retirees to be in the income area and less in capital speculations. Preservation of capital and focus on income. Of course, human greed bypass that. The clients could easily override their advisers' decisions, and corporate need to sell financial products (growth funds) also affects it.
Well, we certainly agree about people needing to take control of their own finances - no argument there.
Thanks for making the points you have. It's a discussion worth having.
No argument there, we all agree on this.
Take your own control and blame no one else but your own.