During times like these when investor fatigue, disillusionment and market uncertainty seems to be at an all-time high it is time to step back, think, validate or challenge.  Our starting point is a frank observation about your own vulnerability. There are two factors that drive markets: Fear and Greed.  The stronger the market moves in either direction and the longer the duration of the move the more prevalent is our fear or greed. Emotions then become a big part of how you will act or react in your decision process.  Unless you recognize and control your emotions, you run the risk of becoming vulnerable to those that know how to manipulate those emotions. I refer to this technique as pushing your hot buttons.

Have you noticed that in bull markets that there is no shortage of those who promise to help you achieve great returns?  They are pushing your greed button.  Then there are markets like we have experienced over the past few years that has brought out the emotion of fear.  That emotion usually makes us more vulnerable as fear lays you open to those who find ways to persuade you that what they have to sell will protect you.  Here is an example in the form of a commercial.  “I saw the crash of 2008 coming and I protected my clients and they did not lose money”.  Translation: I sell annuities and some of what I said is true.  Fear can also place you in a position of inaction when steps can and should be taken to protect your assets but you are not sure who to trust. Many times over the years I have heard “we are happy with our advisor” which in many cases translates into “we are holding hands hoping to get through this market decline together because they don’t know what to do either.”  You may find that waiting for markets that are more conducive to the skills of those who are better at selling than advising is a costly proposition.

So how can you help protect yourself from becoming a victim of your own emotions as it applies to your finances?  A starting point is accepting that a changing world requires a willingness to be aware of and evaluate those changes periodically.  A major change over the past few years has been the introduction of technology based financial planning/tracking tools.  The best tools currently available are robust and dynamic, easily modified to incorporate life changes and have risk control as the centerpiece of its platform.   To those of you that are skeptical and ask if there is really anything out there that is that unique, the answer is an emphatic yes.   The caveat is that like any leading edge technology, at the beginning public awareness and skilled practitioners are both in short supply. Candidly speaking this approach doesn’t fit the stock traders’ business model of buying or selling as each action must first be considered for its fit in the overall plan. This has the effect of removing the emotion from the decision and mitigates the use of hot buttons.

My experience has shown that most investors take too much risk and thereby reduce the probability of reaching their financial goals. The sad thing is that most consultants are clueless when it comes to quantifying risk in the portfolios they manage. Go ahead and ask them to explain risk (standard deviation) in terms you would understand and how much risk you are assuming in your portfolio.   Remember 10 questions in an asset allocation model, placing you in the categories of conservative, moderate or aggressive, does not measure risk.  So your question might be, “If tools exist which individualize financial plans and mitigate risk why I am not being introduced to such an approach by my consultant or firm?”  Simple, there is no incentive for firms to be proactive in this area. It is all about their bottom line not yours.  Additionally, my experience has shown that when it comes to incorporating advances in technology most consultants will not spend the time to even evaluate how it may benefit the client. Why?  The answer is that if it takes time and effort to learn, doesn’t produce immediate financial reward, doesn’t fit the model of the consultants practice, it is unlikely to get much attention. Would you be surprised to know that one of the major Wall Street firms has made this type of software available to its consultants since December 2008?  The result seems to be one of the best kept secrets in town.  I say, shame on the firms who have this technology but fail to be proactive and inform their clients. To those few consultants who offer this service I applaud you.

What can you expect from this new technology and why speak out to incorporate it? It promotes meaningful client/consultant dialogue, the plans are designed to be client specific, goal tracking is measurable, and it holds the consultant accountable to a higher standard for their knowledge and advice.  The most important element of this approach is that risk management becomes the guiding factor and not performance.  Put the control where it belongs; in your hands.  After all, how many times have you been told by your consultant “remember is it your decision”?   It is time to stop the use of Fear and Greed tactics.

It is apparent that to effect change it is going to have to be a consumer driven effort. What next?  Step back, think, and validate or challenge what has been said.   Ask your consultant if their firm has planning/tracking software available.  If the answer is yes maybe the next question should be; why aren’t we using it? Don’t let them play down the importance of a tool that levels the playing field.  Do independent research. Be prepared, stay informed. Begin by looking at a program called Money Guide Pro.  www.moneyguidepro.com/.  You might even want to give them a call to see if your Wall Street firm is using this software under a different name.  Hint: it probably is.  Finally, never forget that the person sitting across from you is a salesperson first and certainly understands Fear & Greed.

(Note: most firms provide this type of software free to the consultant; however they allow the consultant to charge a fee for the plan. Don’t pay for something that you deserve.  If you need to, remind them that you are paying the bills by being a client of the firm.)