If Advisers are wrong, what is their value? Certainly, that was the image of the Federal Reserve as transcripts of its meetings in the early days of the 2008 financial crisis were released recently and unveiled the naked truth: Despite the popular belief that the Fed governors can see all when it comes to the economy, those transcripts showed that even economists of the world’s most powerful economy didn’t have a clue. Even as Lehman Brothers collapsed, they expected the economy to grow, not go into the worst recession since the Great Depression. And it should pierce an illusion many individuals embrace as they pour trillions of dollars into the hands of financial advisers they think can read the future and thereby deliver riches and safety. Americans entrusted about $13 trillion to advisers, ranging from financial planners to brokers and insurance sales- people, through the end of 2012. The truth is that economists often get it wrong, and financial advisers, who may or may not read reports from economists, see even less. “We do not have a crystal ball,” said Ed Gjertsen II, president of the Financial Planning Association. “We make guesses.” That’s true of stock market analysts too. And stocks and bonds can get whipsawed by surprises few envision. High fees over many years can be more destructive than stock market downturns, so clients win when advisers keep fees and commissions in check. Investors are usually in the most danger when the market is hitting repeated records, and face the most opportunity after stocks plunge to scary depths. But don’t ask an economist or an adviser when the good times or awful times will end. They may venture a guess, but your guess may be as good as theirs. Source: Gail Marks Jarvis Chicago Tribune
Posted on: Thu, 20 Mar 2014 18:00:00 +0000