News Room
Advisers reflect on scandals, stock-market tumult
 
Friday, June 25, 2010

For financial advisers, the Bernie Madoff investment Ponzi scheme scandal was the left hook of a one-two combination that began with the unraveling of the housing market. Investors were angry at the losses they’d suffered, worried about losing whatever they had left and afraid that their money may be at risk at the hands an unscrupulous investment manager, especially given the massive scale at which Madoff had fooled so many.

With economic conditions still uncertain and investors’ wounds beginning to heal, reporter Keith Regan asked area investment advisers how recent events have affected their profession, and how they deal with clients.

Jane King
Fairfield Financial Advisors.
Years in the business: 20.
Firm’s assets under management: $100M.

I think the financial crisis and subsequent economic meltdown in 2008 redefined how many people perceive risk. Risk tolerance, once just a faraway concept to many investors, has become something that clients now really explore and assess. Many individuals on their own, or with the guidance of their advisers, have reduced their exposure to growth in their portfolios. As a result of the crisis, they understand the need to protect on the downside and that this is just as important — if not more important — as appreciation on the upside.

The high-profile scandals are another issue. As a member of the advisory profession, I am outraged when those who call themselves advisers abuse the trust that a client places in them. The regulatory authorities were clearly asleep at the switch.

Individual investors who are seeking advisory help must educate themselves in advance of the interviewing process. They need to know the right questions to ask and investigate the background of potential advisers before hiring them. No doubt, these scandals are terrible for the profession and tars us all with the same brush. Potential clients ask me many more questions now — and I agree that they should — before they make a decision to hire me.

Brenda Wenning
Wenning Investments Inc.
Years in the business: 19.
Firm’s assets under management: $100M.

A lot of people remain very nervous about the markets today. If back in 2008 someone pulled out of the market, fear might have prevented them from going back in, and some may still not be fully back in the way they were before. The markets have come back strong, and if someone believes in buy-and-hold, there’s a strong argument to be made that even though it was questioned in the midst of the crisis, it still works.

But that view overlooks a lot of the realities about markets. There is a lot of stimulus out there, and it’s hard to say what impact that is having and how much of it is the market holding itself up based on fundamentals. People became much more interested in preserving capital first and less interested in growing their investments.

Now, people are learning to trust markets and advisers and money managers again, and the idea we try to promote is that an active manager isn’t someone who is day trading from your account, but is someone who is looking at very specific internal data about markets and making educated and informed decisions about how to approach investing in the light of those realities. We haven’t changed our approach, but some of what has happened has made people more willing to listen to our message.

Christopher Dalto
Delessert Financial Services .
Years in the business: 11 (Delessert is 16 years old).
Firm’s assets under management: $350M.

The economic meltdown and high-profile scandals caused us to increase the lines of communication with clients. We spent a lot of time helping clients manage fear so that they could make objective, unemotional investment decisions. In the fall of 2008 clients showed a lot of fear and anxiety. They were also confused. They were fearful due to the extreme negative volatility of the markets. There were a lot of questions from clients asking if this was the Great Depression all over again. For certain clients we advised them to stop watching the business news stations as it was perpetuating their fear.

We sent out many educational e-mails regarding our market perspective. In addition, we had regular in-depth, market-focused conference calls with all clients. On top of that we spent a lot of time calling clients individually (and answering their calls) to discuss how the volatility affected their portfolios.

Part of our job as advisers is to manage two emotions: fear and greed. In the fall of 2008 “fear management” was our primary task.

Additionally, a lot of time has been spent with clients reviewing their retirement projections so that they are aware how they have been affected by the recent market volatility.

We educate clients on how to avoid Madoff-type scams by urging them to always make sure that the adviser who invests the money should not be the one who sends out the client statements. We tell them that the safest strategy is to have the assets custodied at a firm that is independent from the adviser.

Stephen E. Prostano
Silver Bridge Advisors.
Years in the business: 28.
Firm’s assets under management: $1.6B as of 12/31.

Today as allegations of fraud and self dealing circle the financial services industry, we are focused on educating our clients on our commitment to integrity, unbiased investment counsel and client-focused wealth management. We feel it is important, now, more than ever to illustrate how we live these words in practice, not just in theory:

Silver Bridge is an independent wealth advisory boutique, with an 80 year history founded on fiduciary responsibility and trust, which allows us to truly act as an advocate for our clients. We are compensated by our clients only, for investment management and wealth advisory services. We seek best execution for our clients’ trades and do not earn any commissions on trades executed or products sold.

The cornerstone of our relationship with each client has always been our focus on education, communication, delivering a state-of-the-art reporting capability and ongoing collaboration, all of which, we believe assist our clients in making sound financial decisions for their families. Today, this is even more critical.