Are Baby Boomers Turkeys Trusting Certified Financial Planners

Government always want to try to make things safe for their citizens. The very act of doing this often puts their citizens in greater danger. They get lulled into a false sense of security and believe the government will protect them. They could not be more wrong. (Maybe it has changed now with all these bailouts but it will Don't be a financial turkeycost us all plenty)

Using a certified financial planner is supposed to give  you confidence. Unfortunately it has resulted in the destruction of your nest egg for many Baby Boomers.

The problem is when they try to protect us from things which are not transparent and cannot be tested every day, there are dangers.

For instance governments have police forces to protect their citizens. For the most part this works well. The people can see the police force in action every day with people being arrested for crimes and going to jail.

Now let’s consider the wealth management industry. Here governments have tried to protect the citizens from unqualified financial advisers. They have done this by making would-be financial planners take examinations and become certified to give financial advice.

There are some problems with this. What is taught may not be the best advice or may not be appropriate at that time. For instants “Buy and Hold” at the top of a bull market is shear folly. Yet I know friends who’s money was invested in November 2007.

Yes, you do know when the market is at the top because there is a bubble (somewhere in the economy). You just don’t know when  the bubble will burst and probably don’t want to miss out.

The other problem is it leaves no room for new or competing investment strategies that allow people to choose. So most people ends up with the same investments and the same strategies for the most part.

Buy and Hold actually makes sense in this scenario because you cannot have everyone exiting the same investments at the same time using the same exit strategies; and hope everyone gets out with any profit or their capital intact. Who do you sell your stocks to in such a situation?

So the majority of Baby Boomers hang on and take the advice NOT TO PANIC.

Therefore the investment strategy is not tested in the real world, until it is too late. You will only have paper profits until you sell. Then you will know if the Buy and Hold strategy was successful for you. It won’t be if everyone sells at the same time.

So you have to TIME your exit and get out before everyone else does. Unfortunately your certified financial planner is unlikely to do this for you.

Another point is a policeman is committed to protect and serve the people and is certified to uphold the law.

A financial planner is certified as a financial planner to give financial advice and that is all. They are not obligated to protecting their client’s wealth. In Australia under the law, they only have a duty of care to offer advice but without consequence or obligation.

That does not mean all financial planners should not be trusted. Some do work to protect their clients wealth. Unfortunately the majority have been trained in selling the “Buy and Hold” strategy that has now decimated so many Baby Boomer nest eggs.

Only now is the Financial Planning Association (Australia) introducing a “code of conduct” that all their members will sign up to. It includes taking fiduciary responsibility for your nest egg, by putting your interests first 😉

I’m not sure how that can be reconciled with a buy and hold strategy. It remains to be seen how it will be resolved.

In the main if there is a major public disturbance you can rely on the police and law enforcement services to get it under control. We trust them.

If there is a major stock market melt-down you cannot rely on the wealth management industry to protect your nest egg. They have not been trained to do this and it is not in their short term interest to do so.

They will only sit on the side lines and tell you NOT TO PANIC. When the melt-down has finished they will urge you to put more money in the market to help it recover your lost profits.

The longer the bull market the more you are sucked in to eventually lose a significant portion of your profit and possible your capital. It’s just a given that the longer you are exposed to risk the more chance you have of taking a hit.

Nassim Taleb talks about this in his book, “The Black Swan” by way of a the story of the turkey.

“Consider a turkey that is fed every day, Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race ‘looking out for its best interests,’ as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.”

Don’t be a turkey.

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