CEO Commentary

In the News - 12/8/2008

Investors Cheer Obama Spending Plan - Dow Jumps. Wall Street extended its rally into a second session Monday as investors grew optimistic that President-elect Barack Obama's plan for a huge infrastructure spending package will help boost the crippled economy. Obama announced the plans for the largest U.S. public works spending program since the creation of the interstate highway system a half-century ago. That could bolster the economy by putting thousands of people to work building schools and other construction projects. (12-8-08) (AP)

White House: Auto Deal is Very Likely. It is likely the White House will reach a deal with Congress to help failing U.S. automakers but warned that Democratic lawmakers need to quickly provide their specific proposal. "It sounds like we have agreement on those basic principles that would be required for a bill that the president could sign," White House press secretary Dana Perino told reporters. A “car czar” is being discussed as an overseer. The overseer could recall the loans as early as February if the carmakers weren't doing enough to reinvent themselves and become viable. And if the Big Three didn't come up with suitable restructuring plans by the end of March, the "car czar" would have to submit his own blueprint to Congress for a government-mandated overhaul. (12-8-08) (Julie Hirschfeld-AP).

Obama: Auto Bosses Should Adapt Or Go. President-elect Barack Obama fired a warning shot today at the top executives of the Big Three auto companies, saying that they should either agree to drastic reforms or be sacked. “If this management team that’s currently in place doesn’t understand the urgency of the situation and is not willing to make the tough choices and adapt to these new circumstances, then they should go,” Obama said at a brief Sunday afternoon news conference here.(12-7-08) (Jonathan Martin-Yahoo News- Politico).

Congress Considers Relief for IRA, 401(k) Investors. Americans with IRAs or 401(k) plans are required to start making withdrawals after age 70 1/2. When markets are rising, the mandatory withdrawals aren't generally a problem, but current market conditions make the rule an issue for some seniors. "Without immediate intervention, the current IRA-distribution requirements will ... [force] retirees to choose between stiff tax penalties or the liquidation and distribution of withdrawals based upon inflated retirement account balances," Financial Services Institute President and CEO Dale Brown wrote in a letter to Treasury Secretary Henry Paulson. Congress is considering offering seniors temporary relief from the rule. (12-7-08) (The Arizona Republic-Phoenix).

Expert Says RIAs Need to Focus on Best Practices. Mark Tibergien, CEO of Pershing Advisor Solutions, said that principals of registered investment advisers need to focus on having the best business practices in place in order to survive the financial crisis and thrive when conditions improve. Pershing's latest survey, which focuses on best practices in management of employees, found that increasing numbers of respondents said that staff development has become more of a priority. "The bull market camouflaged a lot of sins," Tibergien said. (12-7-08) (InvestmentNews).

Merrill Says Goodbye to 94 Years of Independence. Merrill Lynch ended its 94 years of independence when shareholders voted to approve the sale of the nation’s largest brokerage house — with its “thundering herd” of brokers, “Bullish on America” slogan, and all — to Bank of America Corp. During a special shareholders meeting at company headquarters in New York, Merrill shareholders approved the sale of the company to the Charlotte, N.C.-based bank. Bank of America shareholders then gave a thumbs-up to the acquisition. (12-5-08) (Aaron-Elstein-InvestmentNews).

Unemployment Reached 6.7% in November. The U.S. economy shed 533,000 jobs in November, marking the largest single monthly contraction in the job market in 34 years, according to data from the Department of Labor. Those losses brought the national unemployment rate to 6.7%, marking the highest reading since October 1993. The job losses include 32,000 in the financial-services sector. The reading was 6.5% in October. (12-5-08) (Aaron Siegel-InvestmentNews).

Investors Withdrew $12 Billion from Mutual Funds in a Week. Investors withdrew $12 billion from stock-based mutual funds in the week ended Dec. 3. That more than erased the $10.4 billion investors contributed to mutual funds one week earlier. "Mutual fund money is performance following. ... When the market goes down [investors] take their money out," said Vincent Deluard, a TrimTabs analyst. (12-4-08) (CNNMoney.com).

U.S. Treasury Works to Cut Rates for New Mortgages. The U.S. Treasury wants to breathe life into the housing market by making new mortgages more affordable. The plan, which has not been finalized, would work through Fannie Mae and Freddie Mac to drive 30-year mortgage rates down as low as 4.5%. (Financial Times) (12-4-08).

SEC Cracks Down on Ratings Agency Conflicts. The Securities and Exchange Commission has adopted new rules aimed at increasing transparency and accountability at credit rating agencies, following criticism that the agencies contributed to the financial crisis. The five SEC commissioners voted unanimously to approve a series of rules that force the ratings agencies to crack down on conflicts of interests, which arise mostly because banks or issuers pay for ratings of their products. The main New York-based agencies — Moody’s Corp.; Fitch Ratings Ltd.; and Standard & Poor's, a unit of McGraw-Hill Cos. — have been criticized for helping cause the credit crisis by giving top ratings to mortgage-backed securities that later collapsed. (12-3-08)(Aaron Siegel-InvestmentNews).

U.S. Has Been in Recession Almost a Year, Economists Say. The National Bureau of Economic Research confirmed that the U.S. economy officially slid into a recession nearly 12 months ago. "We will rewrite the record book on length for this recession," said Allen Sinai, president of Decision Economics in Lexington, Mass. "It's still arguable whether it will set a new record on depth. I hope not, but we don't know." Both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson pledged to revive the economy using all of the tools in their arsenal. (12-2-08) (Bloomberg) (02 Dec.), (12-2-08)(International Herald Tribune), (12-1-08) (Financial Times).

Some Firms are Finding an Upside to Downturn. An economic downturn, while fraught with pain and problems for so many small businesses, can also have some upsides for companies. Some are to be expected — a tough economy motivates businesses to find new ways to work more efficiently — while others are serendipitous, coming in the form of opportunities for expansion. (12-2-08) (AP).

Paulson Says Treasury Developing Programs to Aid Economy. Speaking at a Fortune 500 Forum, U.S. Treasury Secretary Henry Paulson said his department is creating programs to boost lending and stabilize the economy, although he offered few details. "We are actively engaged in developing additional programs to strengthen our financial system so that lending flows into our economy," Paulson said. "When these programs are ready for implementation, we will discuss them with the Congress and the next administration." (12-1-08) (Reuters).

Volcker to Preside Over Economic Advisory Board. President-elect Barack Obama has tapped former Federal Reserve chairman Paul Volcker to be the chairman of the newly established President's Economic Recovery Advisory Board, which will be charged with turning the beleaguered economy around and stabilizing the financial markets. Mr. Volcker served as the chairman of the Federal Reserve Board under Presidents Carter and Reagan between 1979 and 1987. (Aaron Siegel-Investment News) (11-26-08).

Consumer Confidence Hits 28-Year Low. Consumer confidence fell to a 28-year low in November, as increasing job losses, lower incomes and disappearing household wealth continued to make Americans wary about the state of the economy, according to The Reuters/University of Michigan Surveys of Consumers. The Reuters/University of Michigan Index of Consumer Sentiment fell to a reading of 55.3 in November, down from 57.6 in October. This month's figure is markedly below the 76.1 reading recorded in November 2007. "Few consumers expect the recession to end anytime soon," Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers, said in a statement. He noted that the November reading was the third worst on record, coming in behind the all-time low of 51.7, which was reported in April and May of 1980. The Index of Consumer Expectations was 53.9 in the November survey, undercutting 57.0 reading in October. (Aaron Siegel-Investment News) (11-26-08).

Analysis: Buffett's Bet Not as Risky as it Seems. Warren Buffett made a $37 billion gamble that indexes, including the S&P 500, will be higher in 15 to 20 years. It seems to be an uncharacteristically risky bet for one of the world's savviest investors, but it is actually much less risky than it appears. (SmartBrief) (Financial Times) (11-24-08).

Cash Becomes King as Financial Crisis Spreads. What started as a subprime-mortgage meltdown has evolved into a global financial crisis that is forcing companies of all shapes and sizes to cut their work forces. Businesses are seeking a resolution to their problems, and the most attractive fix appears to be cash. Those with cash may not only survive the economic downturn but could also thrive, if they are able to use that cash wisely. (The Economist) (11-20-08).

Icap CEO says worst of financial crisis is over Icap. CEO Michael Spencer said the financial crisis has "passed its worst point" and that the largest interdealer broker in the world has "navigated a pretty good outcome." Still, Icap's shares dropped more than 8% despite reporting figures that are near expectations. (SmartBrief) (Financial Times) (11-19-08).

Comments

Endurance is a beautiful character quality and it has been tested in us on a daily basis. The financial community is striving to survive. Moss Adams estimates that the conditions that we are in right now will eliminate over 20% of financial representatives. Allianz estimates that up to 50% of insurance agents could be wiped out. Market volatility has proven to be a very formidable opponent and once again it is long-term vision that sustains hope for practitioners and investors alike. In the financial planning curriculum one is drilled on the fundamentals of diversification, asset allocation, and a proper perspective on directing future life events. Since risk is the element of uncertainty, only proper planning delivers a marketable value in markets such as these.

We have recently been informed that SecuritiesAmerica has purchased E-Planning in what one industry veteran described to me as a “fire sale” deal.

As of this writing, there has still been no official notice regarding the status of AIG owned broker-dealers. Once again we have been busy fielding calls from those interested in a possible move to Pacific West Financial Group.

Advice to Representatives and Advisors:

At our recent Top Producer event in May, 2008, we hosted Matt Oechsli as a keynote speaker. I am proud to forward to you a recent article that he authored focusing on the season we find ourselves in.

Winning In Tough Times: Part 1
By Matt Oechsli

New York: "It's been a real rough month," sighed Jeremy, "We've all been taking incoming calls non-stop, from the time we arrive in the morning until we leave at night. I'm getting worried that we're getting burnt out."

It’s more than likely that you can feel Jeremy's pain. You, too, have been playing defense to a panicked book of clients and every member of your practice has been forced into a crisis mode. All of which makes it difficult to think about "winning" in these tough times. However, during challenging times there are always a select few who are able to capitalize on the turmoil, advisors who are able to see beyond the immediacy of the crisis and envision the new world after the storm.

Alas, these advisors are few and far between. Fortunately we've been able to identify three commonalities of those who are truly “Winning in Tough Times”: Mindset, Offense and Defense. Part one of this three-part series on Winning in Tough Times, will focus on Mindset.

Here are some quick Mindset facts:

• Only 3.8 percent of advisors are Rainmakers in today's environment (they have no competition!)
• Most advisors are paralyzed by tough times.
• Most advisors don't think big enough.
• We all have a tendency to gravitate to what's comfortable.
• Only 13.4 percent of advisors have increased the personal time they are spending with clients in these tough times

Component 1: Mindset

Today we are going to talk about Mindset, but before I share with you how an elite group of advisors is winning during these tough times—they're wearing the multiple hats of high priest, chief rabbi, psychologist and financial advisor—and helping their clients to get through these turbulent times, it is important to be reminded that the majority of advisors are simply reacting to the markets and their clients.

In the extreme, this can lead to advisor depression which is a very dangerous state. In milder stages, it creates a paralysis. To put this in another context: Imagine that a deadly flu epidemic is sweeping the country, the media are working everyone up into hysteria, and your physician is not seeing patients because he's paralyzed by fear. Ugh.

Dealing With A Sea Of Negativity

The bottom line is that we are drowning in a sea of negativity broadcast by people who aren't experts in financial affairs (granted, even the experts are being severely tested). This is why the elite corps of advisors fully understands that the media is simply an entertainment medium; the more they can hype a traumatic event, the more viewers tune in, which translates into a bump in revenues. Look no further than “The War on Terror,” Katrina, or the Wall Street Bailout to witness this cause and effect.

Consequently, in order to win under these conditions, smart advisors are careful to limit their exposure to the hype so they can keep their minds clear. If Paul Volcker writes an op-ed piece in the Wall Street Journal, they read it. If Warren Buffet or Michael Bloomberg has something to say, they listen. In this manner, they are able to buffer themselves from the media hysteria and craft their teams' stories. In turn, their teams become a trusted medium of communication for clients.

So, from a Mindset perspective, here is what you and your team should AVOID:

• Listening to the non-expert media pundits; soaring TV ratings and internet traffic for business news only serves to generate increased advertising revenues—and panic.
• Negative or paralyzed advisors and panicked support personnel; they should always be avoided as misery loves company.
• Listening to politicians; there is little they will not do or say to win an election.
• Feeling responsible for your clients' fears; they must stop listening to non-expert media pundits.
• Accepting responsibility for Wall Street; you did not create this global problem.
• This will create a platform that will enable you to replicate what advisors are doing to truly "win" in these tough times.

You must be able to project a calming confidence, both to your support personnel and your clients. This requires setting priorities and discipline. Your health—both mental and physical—is critical in being able to assist you "win" while in the midst of this storm. The following is a sampling of what today's winners are doing:

• Carefully craft your team's story; use experts (Buffet, Volcker, etc.) to help craft your story.
• Be physically active daily; exercise if possible.
• Eat healthy and be careful with alcohol consumption.
• Get out of the office; fresh air and a change of scenery can strengthen the body and mind.
• Get a good night's sleep.
• Listen to positive affirmations.
• Read history; tough times have always been part of life.
• Be proactive; activity is the tonic of winners.

Remember, only 3.8 percent of your peers are bringing in serious levels of new assets in today's environment. The opportunity is there—get your mind right and go for it, as there is no competition. You will discover that you too can win during these tough times.

In our next issue, I'm going to share with you how these elite advisors are proactively playing "Defense" in these tough times.

Winning In Tough Times: Part 2 (Defense)

"I'm getting killed, my fee-based revenue is way down, my deferred stock that I've been planning on retiring on is in the toilet. And, with the non-stop incoming calls, I don't have the time or energy to meet with my clients," moaned Sam, "I'm done, you can stick a fork in me."

After listening to Sam's concerns, I responded with our "Winning in Tough Times" mantra:

Your actions over the next 12 months are likely to define your practice for the next 10 years.

Think about that statement for a moment. We are in the midst of a "Category 5 Financial Tsunami" and Sam's toast. Sadly, he's not the only advisor whose personal finances have been crushed. He, like so many others, is being forced to react to a deluge of daily incoming calls and leaves the office exhausted. But there are some fundamental issues that need to be addressed.

Obviously Sam and his peers should reread my last Practice Management e-letter, the first in my "Winning in Tough Times" series. He needs to get his head back in the game. There are a number of factors interfering with Sam's ability to engage in a strong and proactive defense. (When referring to "defense," I'm talking about strengthening the loyalty of your top clients.)

The primary reason Sam is receiving non-stop calls is because he has too many clients. Like many advisors, he has procrastinated in segmenting his book and jettisoning smaller clients. Mistakenly viewing smaller clients as his security blanket, he is now paying the price: He's now obligated to help these clients through this storm. In Sam's case, it doesn't seem like he's prepared.

Another issue interfering with Sam's defense is his focus on his personal financial affairs versus those of his clients. Over the years, whenever I encountered an advisor more concerned with personal production as opposed to the quality of advice they were providing clients, I was essentially witnessing an accident waiting to happen. These missteps usually occur in turbulent times. Rather than scrambling to protect his cash flow and lifestyle, Sam needs to believe—without proof—that by doing right by his clients, he will not only survive this storm, he will thrive. Nonetheless, in order for this to ensue, all of his energies must be directed to his top clients.

The silver lining in engaging in such a robust defense is that this Category 5 Financial Tsunami provides a tremendous opportunity for penetrating your top client's centers-of-influence, which will be detailed in the next Practice Management e-letter.

Advisors need to get fully engaged—or else they should begin to look for another profession. In the midst of crisis there is no time for self-pity, hesitation, laziness or personal weakness. Your reality is that when the dust settles—and it will settle—the role of trusted advisor is going to take an even greater importance to affluent investors. This should come as no surprise, since Wall Street has all but nuked its trust bond with the affluent. However, as the graph indicates, the trend is going in the right direction, but there is still work to be done on the "trust factor."

Make no mistake about it: Doing the right things today will strengthen that elusive affluent trust factor and carry you to a sweeter tomorrow.

This means that the advisors of the future are those individuals playing a strong defensive game in the midst of today's Category 5. Nothing about your defensive game (loving your clients) needs to be complicated. Good service, understanding, and time and attention wrapped up in calm, reassuring and knowledgeable advice is a defensive game plan.

The following is an action plan that Rainmakers are using with tremendous success in the midst of this Category 5 Tsunami. This action plan is pulled straight from the Winning in Tough Times webinar series we're doing with Registered Rep. In a nutshell, it's all about loving your top clients.

• Significantly increase the personal time you spend with top clients.
• Communicate your story: the status of their portfolio, their financial plan, the markets, Wall Street, your vision of the future and game plan.
• Provide a "Market Update" synopsis of your story relevant to their portfolio, financial planning and your game plan.
• Review, update or reinforce the realities of their financial plan and current portfolio.
• Organize and coordinate all their financial documents; introduce a financial organizer to clients who do not yet have one.
• Offer to meet with their CPA to go over all of the above.
• Surprise and delight your top clients: Little things that are personal go a long way.
• Source names from their centers-of-influence: family, friends and colleagues.
• Hold regular Market Update Events: breakfast, lunch, coffee, etc.

Next time, I'm going to explain how Rainmakers are incorporating an aggressive and highly effective offense into their defensive game plan. Only in a Category 5 can you so blatantly combine both defense and offense.

Data from Boomer Market Advisor

Employers and boomer retirement preparation:

• 38.9% - Percentage of workers between 50 and 59 with at least one IRA.
• 57.5% - Percentage of workers between 50 and 59 with a pension from their current job.
• 44.1% - Percentage of workers between 50 and 59 with a 401(k) from their employer.

Find more statistics at www.BoomerMarketAdvisor.com.

Source: AARP

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