16 Feb What Advice Did We Give Our Clients If The Market Corrects?
Last Friday afternoon just after the market closed, I got a call from George*.
I’ve never met George but he sounds like good fella. He’s also a subscriber of the Moowsletter, so clearly he’s no dumb dumb. 😉
George was a tad nervous after reading last week’s Moowsletter – ‘Will the Market Fall Further?’ In particular, he wanted to know if my prediction about the Dow Jones dropping 6,000 – 8,000 points this year was just a typo. He was hoping I might have overdone it with the zero’s.
Unfortunately for George, the nerves didn’t stop there either.
He also referred to our final Moowsletter for 2017 – ‘Merry Christmas’. In it, I suggested Bitcoin was about to tank from its then high of $19,000. (Last week it traded below $7,000 and I expect it will trade below $2,000 by year end).
He was concerned the Dow Jones would do the same thing.
Unfortunately, George isn’t a client so by law I wasn’t allowed to give him any advice. All I could do was tell him what I had already told most of my other clients, which was:
Under 50: Just sit tight, you’re going to be ok. By the time you retire this next correction will mean nothing to you…unless of course you’re invested in rubbish.
Over 50: If your super is not generating a return of 5-6% pa (after tax) in a falling market, then you’ve got the wrong strategy in place. Period.
Eventually George fessed up and said he’s a client of a major financial institution and wanted to know why his adviser hasn’t warned him of a correction.
Firstly, we’re assuming I’m right about the market correcting. He’s adviser may simply have a different view to mine. And if I’m wrong, then I’ll be wrong at the top of the market.
Secondly, in the world of financial planning, there are two types of advisers…
Butcher’s and Dietitian’s
The difference between a butcher and a dietitian is like lentils and lamb chops.
A butcher will sell you whatever he has on offer, while the dietitian will recommend what’s best for you. In other words, the butcher has a bias and the dietitian doesn’t.
Suncow plays the role of a dietitian.
|The Butcher||The Dietitian|
|* Has a bias||* No bias|
|* Specialises in PRODUCTS||* Specialises in PATHWAYS|
|* Prefers commissions||* Prefers fee-for-service|
|* Likes to dictate||* Likes to educate|
If George’s adviser is a butcher, it means he’s commission driven.
What this means for George is the more he has invested the more his adviser and employer earn from him. It’s like a second tax. Therefore, if a client is not fully invested this may threaten how much the adviser makes. The banks are the biggest butchers of all.
Suncow on the other hand doesn’t do commissions. We charge a flat fee-for-service which eliminates any bias from our advice. We’re dietitians.
What this means for our clients is we can stand on our own research and tell them exactly what we think, like an impending correction, and it doesn’t impact how much we earn. Naturally, our clients appreciate the transparency as well.
Next week I’m going to tell you why I expect interest rates to go up. Without the bias.
Have a great weekend!
p.s. George is not his real name but he did give us permission to share his story.