Try as you might, but in today's economy you'd be hard pressed
to find someone who doesn't cringe when pulling up to the gas pump
or reviewing a monthly electric bill. That's because few financial
measures have the ability to unnerve Americans more than the
fluctuating price of gasoline or other finite energy sources. And
why shouldn't consumers feel the heat? According to
reports1, the national average cost per gallon of
gasoline has reached heights of over $4 and lows of close to $1.50
within the past three years. Even more, with the current average
price at $2.869 and rising2, this measure promises to be
a thorn in the side of the average consumer for years to come. But
wouldn't that be nice if energy prices were the only worry on
investor's minds?
The reality is the continuous flux in the cost of energy is only
one of the major trends that our economy currently faces. We all
know about the recent passing of the sweeping health-care reform
bill, which will soon impact the lives of every day consumers, the
collapse of the real estate market, the demise of defined pension
plans, the almost total bankruptcy of the American automobile
industry and the threats to social security. These issues are real
and combined have brought about a period of accelerating change in
our nation's economic landscape.
More importantly, what investors and consumers have to
understand and accept as hard as it may be is that economic changes
and shifts such as these come whether we like it or not. And
so the question remains: are we prepared for inevitable change?
As an investor in a turbulent and unpredictable market, you'd be
right and prudent to wonder if working on a sensible financial plan
is worthwhile, or even possible. But actually, in a country that is
enduring (for better or for worse) such rapid change, the need for
a dynamic, evolving financial plan-and a trusted financial advisor
able to adapt to change-is stronger than ever.
If your advisor, at the end of your first meeting, plops down a
72-page bound document and says, "Here is your financial plan, Mr.
Client," question whether or not this makes sense. Does it
make sense to evaluate your entire financial future in one
afternoon meeting? Does the plan you've been given take into
account every possible variable that may occur? Of course it
doesn't.
No one can make that claim. (If they do, turn around as
quickly as possible and walk out the door.) The point is not
that financial planning is worthless. The point is that a
static financial plan is only as good as the assumptions
you've built in. And when examining the recent volatility and
fluctuation of energy costs, retirement portfolio values and the
real estate market, one would be remiss to put all of his eggs in
one basket based on an assumption.
A dynamic plan, however, will change as you
change. It will change as the economy changes. The
variables can be added or subtracted as needed and the end result
will be a living, breathing entity. When you meet with a
prospective advisor, find out if they regularly review your
retirement projections. Re-evaluating a financial plan each
year vis à vis the ever-changing economic environment is
the only way to make sure that your financial plan says on
track.
To evaluate a financial advisor, be cautious of the megalithic
financial firms. The image of the staid banker in his
pin-striped suit, haughtily recumbent against a pillar of marble,
doesn't instill the same type of confidence that it once did, nor
should it. Since the financial crisis of late 2008, the
largest of the large Wall Street firms' reputations have been
tarnished. Several of them have ceased to exist
entirely. By working with a smaller, independent firm, an
investor can be assured that a response to economic change, either
positive or negative, can be nimble and effective but the
difference is more than just personal attention.
Many small firms out there today are operating as Registered
Investment Advisors. This is a designation rarely understood by
potential clients, yet feared by brokerage firms which, by their
very structure, cannot meet the fiduciary responsibility
requirements of a Registered Investment Advisor. A brokerage
firm needs to recommend products that are "suitable" for their
clients. If a proprietary investment product is "suitable"
for a client, yet more expensive than some alternatives, that's
what he's likely to sell you. A small Registered Investment
Advisor, on the other hand, has a fiduciary responsibility for its
clients. That means the advisor must avoid conflicts of
interest, act in the interest of their clients as opposed to
themselves, and provide continual review and oversight of each
client's situation. The relationship with a Registered
Investment Advisor doesn't end when they sell you a product.
It continues for as long as you work with them.
As the pace of change increases, so does the need for dynamic
planning, nimble financial thinking and total portfolio
transparency for investors. If you haven't taken a look at
your financial plan in a couple of years, pull it out of the desk
drawer.
Dust off the fancy cover and take a look at some of the goals
and assumptions you made three, five or ten years ago. Does
it still make sense? Can it adapt?
If not, you may need to adapt the way you see 'change' as a
force of nature. It isn't always good. It isn't always evil.
But it is inevitable.
The Wiley Group is an SEC registered investment adviser
located in West Conshohocken, PA. A copy of our current
written disclosure statement discussing serves and fees is
available upon request.
1 U.S. Energy Information Administration
http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_history.html
2 AAA's Daily Fuel Gauge Report http://www.fuelgaugereport.com/
