Monday, April 5, 2010

To Seek or Not To Seek Advice?

A friend made an interesting comment during a recent conversation, and I’m wondering what you think about it.

This friend, who is not a client, mentioned in passing that recent economic troubles have led the investing public to understand the value of seeking professional advice in the areas of financial planning and investing. “We might not have understood it before,” he said, “but we do now.”

I wonder: is that really the case? My friend’s sentiment arose from the painful experiences of the Great Recession: the market meltdown, widespread unemployment, dead-in-the-water real estate and credit markets, and a general feeling that what we had long believed to be true may not be true after all. For him, at least, the need for professional assistance has become obvious.

But I’m not so sure. I think there are at least three factors working in the opposite direction. For one, as I have said before, we Americans can have a fairly short collective memory. It’s part of our greatness: while some cultures hold themselves back by holding grudges for centuries on end, Americans tend to focus on the task at hand and, to a great extent, let go of the past.

While this trait has proven to be of great benefit to us as a nation, it can sometimes pose a challenge. While the Great Recession is still with us on many fronts, the investment markets have been in recovery mode for a full year now. For some, I suspect the recovery has left much of the pain in the rear-view mirror, and their attention has shifted to other more pressing issues.

Then there is what we could call the Bernie Madoff factor. As you are no doubt painfully aware, Mr. Madoff, a well-respected investment manager to the ultra-rich, for many years was able to pull off the biggest Ponzi scheme in history, in the process bilking his trusting clients of upwards of $50 billion.

The third factor holding people back from seeking professional financial advice (at least to my way of thinking) is the misplaced notion of paying someone to do what you should be able to do yourself. For some people, the idea of paying a (seemingly) large fee for help in managing one’s resources feels needlessly extravagant.

While each of these points has a persuasive argument on the opposite side, of course, and working with an advisor is certainly not right for everybody. But I do believe a large percentage of consumers could benefit from working with an advisor, and these three factors prevent a lot of them from doing so.

What do you think? I’d be interested in hearing from you. Drop me a line with your thoughts.

In the meantime, enjoy the week!

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