The More Things Change, the More They Should Stay the Same

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For sheer investment chaos, 2011 would be hard to beat. Markets soaring every time European ministers seemed to be getting along, markets plummeting with each political standoff, both here and abroad. What should have gone down, went up – witness US Treasuries after the credit downgrade. What should have gone up, went down -- witness housing prices, with mortgage rates at all time lows.

When market irrationality prevails, the question is: do financial advisors throw out the playbook? The Certified Financial Planner Board of Standards asked the men and women CFP® professionals who serve as CFP Board Ambassadors in their communities how they had been advising clients during a year when nothing – be it legislative or economic – was working the way the way they had been trained to expect.

Not all the responses were in agreement, but the differences were more a matter of degree than of kind. One contrarian was alert to the equity market opportunities of a volatile market, where more defensive advisors were having their pre-retiree and retired clients stockpile a bit more cash. A few advisors were rethinking the place of annuities, both fixed and variable with life income riders, in their clients’ portfolios, as a guaranteed source of retirement income. But not a one saw 2011 as reason for clients to throw up their hands and run for cover. Many expressed their conviction that some fundamental investment and planning principles, such as diversification and taking a long-term focus were as relevant as ever, and needed to be re-emphasized.

There was one near-unanimous response from the CFP Board Ambassadors to the volatility and uncertainty of 2011 – consumers need the help of competent professionals to focus on the things they CAN control, as opposed to feeling helpless about the things they cannot. Further, they see a lot of things that need controlling. This advice is a compilation of tips from CFP Board Ambassadors around the country:

Emotions
A collective freak-out happens during times of volatility, it’s a good idea to turn off the TV and look through the short-term to long-term objectives. Stick to objective advice and planning as a way to keep emotions in check.

Portfolio Deposits and Withdrawals
Most pre-70 ½ clients have complete control over the timing of their additions and withdrawals from their portfolios and can moderate the impacts of market volatility on the longevity of their funds. The source of portfolio withdrawals – whether from qualified retirement accounts or after-tax brokerage accounts – can also often be controlled by clients, to take advantage of shifting tax rates.

Taxes
If investment returns have been difficult to find in the market, planners are nevertheless finding returns to careful tax planning both for 2011 and next year. Many advisors are encouraging consumers to see market troughs as opportunities to convert IRAs into ROTHs at a reduced tax cost, and to review their portfolios to consider measures to mitigate the new taxes on investment income that the Affordable Health Care Act will impose in 2013.

Debt
Liability and expense management is as important to consumers’ wealth as asset management – and easier to control in a year like 2011. Professionals have spent time during a disorderly year putting clients’ debts in order of payment priority, and helping them to refinance at lower rates.

If anything, the market tumult of the past year has highlighted one unchanging fact, often overlooked by consumers, about financial planning and financial planners. Namely, advising on investments is only one part of what CFP® professionals do. When the securities markets seem nonsensical and excessively myopic, as many agree was true for 2011, there are a lot of other areas that financial planners are making sense of for their clients.

A financial planner’s job, as these CFP® professionals see it, is to pull everything together – taxes, cash flow, risk management, as well as investments – into an action plan that speaks louder and longer to their clients than today’s evening news.

Eleanor Blayney, CFP®
CFP Board's Consumer Advocate
consumeradvocate@CFPBoard.org

December 21, 2011

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