September 2nd, 2010
by J. David Lewis
After a very robust start to the stock market recovery, a correction occurred in May of this year. So far, the decline seems pretty much confined to May. For the three months since May 31, volatility has been significant. Technically, the three-month S&P 500 Index return was -3.17% to August 31. However, the first day of September gained +2.95% for the Index. With a slightly different three months, the S&P return could have been virtually unchanged or positive. The number of short-term swings this summer has sometimes been nerve wracking. For two consecutive months, my grandchildren’s purchases were on a dramatically up day, when I want them on down days. This is enough to wear on the patience of almost anyone.
Generally, most economists we follow continue to say a slow recovery is underway. In the last days of July, Bryan and I heard an Atlanta Federal Reserve economist discuss his analysis in considerable detail. People continue to save and reduce debt, instead of buying products that create jobs. Businesses are very careful about hiring, because they are uncertain products and services will be bought. It is ironic that improving personal finances for so many consumers is creating a challenge for the economy in general.
An interesting “antidotal side story” on this is the number of new clients who seem to have been moved to ask for our help. If this trend is prevalent among our colleagues, we consider it more evidence people are getting their personal financial affairs in better order. Our work on comprehensive financial affairs; instead of focus on just investments or just other financial products; seems to be in more demand these days.
Also, during this summer new Financial Regulatory Reform finally became law. From our perspective, it will probably improve things, at least some. Making financial institutions stronger got much of the media attention, with less emphasis on measures to protect consumers. The latter of these has been important to us since the beginning of Resource Advisory Services and its professional organization National Association of Personal Financial Advisors (NAPFA).
We believe strongly that everyone who works in a position that might give individual financial advice should be held to a Fiduciary Standard. Too many sales people, who are not required to act in the best interest of their customers, can very easily appear as though they are advisors. Fee-Only service and Fiduciary standards should be improved.
Our colleagues made a very strong effort to incorporate these requirements into the Financial Regulatory Reform. At Resource Advisory Services, we called attention to the debate through our WUOT FM 91.9 sponsorship announcements and our blog. In the end, the bill did not include language for a Fiduciary standard. Instead, it gave the Securities and Exchange Commission authority to issue rules for a required Fiduciary standard, after a mandatory six-month study.
We are hopeful their decision will improve transparency for every relationship between financial advisors and clients. There will be many who lobby to avoid these responsibilities. I personally remember being a banker who complained vigorously about Truth in Lending Legislation implemented in the 1970s. Now, as a fiduciary, representing our clients’ best interests, I am thankful for clear, concise terms in borrowing transactions. If the SEC can be convinced to establish regulations with similar benefit for any buyer of mutual funds, annuities, or life insurance policies, our world will be better.
Yes, Resource Advisory Services’ number of competitors will likely increase. That is alright. We have been a fiduciary for twenty-five years. The fiduciary culture is ingrained in virtually everything we do. That means we are most interested in the best interest of our clients, including our understanding their ability to choose advisors who may serve them better than we can. There is more to money than money.® We want everyone who looks like a financial advisor to serve with their clientele’s best interest at heart.