2011: Financial Advice During a Volatile Year

For sheer investment chaos, 2011 is hard to beat. How did CFP® professionals guide their clients in a market where irrationality prevailed? Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP® asked CFP Board Ambassadors from across the U.S. about how they advised clients during a year when nothing worked as expected.

There was one near-unanimous response from the CFP Board Ambassadors to the volatility and uncertainty of 2011. It was that consumers need the help of competent professionals to focus on the things they CAN control, as opposed to feeling helpless about the things they cannot.

With the outlook for the coming year likely to be similar to the previous, the advice doled out by the CFP Board Ambassadors in 2011 will be just as applicable in 2012. This advice includes controlling the following:

  • Portfolio Deposits and Withdrawals – Most pre-70 ½ clients have complete control over the timing of their additions and withdrawals from their portfolios, and thus can moderate the impacts of market volatility on the longevity of their funds. The source of portfolio withdrawals – whether from qualified retirement accounts or after-tax brokerage accounts – can also often be controlled by clients, to take advantage of shifting tax rates.
  • Taxes – If investment returns have been difficult to find in the market, advisors are nevertheless finding returns to careful tax planning both for 2011 and next year. Look at market troughs as opportunities to convert IRAs into ROTHs at a reduced tax cost and review portfolios to consider measures to mitigate the new taxes on investment income that the Affordable Health Care Act will impose in 2013.
  • Debt – Liability and expenses management is as important to consumer’s wealth as asset management and easier to control in a year like 2011. Put debts in order of payment priority and refinance at lower rates.
  • Emotions – Throughout the credit crisis and turbulent times in the stock market, some advisors shifted away from building appropriate asset allocations to more of a timing based investment method which ultimately fails because those timing decisions fail either on when to get out of the stock market and/or when to get back in. People can be prone to a “collective freak-out” during times of volatility. Objective advice and planning discipline helped keep these emotions in check.

Blayney says there is one additional lesson that could be learned from last year’s market tumult – one that is strengthened by the Ambassador’s list of advice –CFP® professionals do much more than advise on investments.

There are a lot of other areas where financial planners are providing clarity for their clients, Blayney says. A financial planner’s job, as these CFP® professionals see it, is to pull everything together – taxes, cash flow, risk management, as well as investments – into an action plan that speaks louder and longer to their clients than today’s evening news.

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