The State of the Profession – and What to Look for in the Coming Year
Around this time at the end of last year, when people asked me to predict what they should expect for the coming 12 months, I offered some modest forecasts. I said that, beginning in February, the country would be increasingly consumed by a new raging pandemic that would force advisory firm staff to work remotely for the next 12-14 months or more. I predicted that the markets would experience a precipitous free-fall in early March, losing (I tried to be precise about this) 26% of their value in just four trading days. And then, I said, the market would come roaring back despite record unemployment and a more severe GDP decline than we saw during the Great Recession.
I said that the government response to the pandemic would be clumsy at best, there would be three waves of mass infections, and yet the stock market would become increasingly disconnected from economic reality and continue its boom as if nothing had happened.
And, of course, I told people that despite the raging calamity, advisory firms would largely continue business as usual. They would smoothly replace in-person client meetings with Zoom calls, and their clients – even the aging ones – would rapidly adapt to the unfamiliar technology and become accustomed to face-to-screen relationships and advisor screensharing.
I didn't forget to mention that, in the middle of this chaos, the SEC would increase its exam schedule, albeit remotely, that we would see the completion of Reg BI as a distant (some would say cynical) substitute for a universal fiduciary standard. I foresaw that the Schwab acquisition of TD Ameritrade would be approved without any regulatory concerns over the anticompetitive implications of two of the four leading independent custodians combining into one dominant entity.
I offer this fictional account of my forecasting abilities because, well, who could possibly have predicted what we went through in the past 12 months? In hopes that this new year will be less stressful, I'm going to assess the state of the profession as we emerge, exhausted, from our tumultuous 2020 experience.
Let's peer through the veil of time, armed with no shortage of humility.
Where are we now, and where are we going?
The most surprising thing about 2020 was how calm RIA clients proved to be despite many reasons for crippling anxiety. In a recent poll conducted by Marie Swift of Impact Communications, most advisory firms reported that their clients hardly called during the swift downturn in March. I think we all know why. Advisors were quick to reach out to clients, particularly after the so-called Black Monday II incident and reassure them that they (the advisors) were carefully monitoring the situation. They offered, preemptively, to update financial plans.
But a bigger reason that clients weren't pounding the phones was that the downturn didn't last long enough to terrify investors. The remarkably quick recovery and subsequent boom had a calming effect that laid to rest any lingering concerns that clients might have had about eating cat food in retirement.
But one should detect an unhealthy self-congratulatory note in those smug reports of silent phones despite a 13% one-day loss in equity values. Some advisors learned a lesson that will not serve them well in 2021: If they sufficiently train their clients about the possibility of market downturns, all they must do is send out reassuring messages whenever the next bear market hammers portfolio values.
Clients generally become increasingly anxious the longer that markets are declining. The stock market has not yet seen a full reckoning of the economic facts on the ground or the long-term impact of the coronavirus on the enterprise value of American (and global) publicly traded companies. Despite my near-perfect forecasts for 2020, I am not foolish enough to tell this audience when and where the next decline will come, or what the true value of the companies in the S&P 500 should be when we finally factor the economic downturn into the equation.
It will not be pretty.