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STANDUP Advice: Presumptuous Questions

John J. De Goey, CFP
0 Comments|July 20, 2007

Market forecasters are offering little more than educated guesses.
Market forecasters are offering little more than educated guesses.

Real advisors don't forecast. The simple fact of the matter is that markets cannot reliably know what the future holds and as soon as the outcome is obvious, current prices/ trends/ rates reflect the new reality (even if it is weeks or months before coming to fruition). Here's a quick quiz for advisors to do a self-assessment of their practices. For consumers reading this, my view is that if your advisor is coming to you with "advice" about the things listed below, that "advice" is likely penny-wise and pound foolish in that it deals with ephemeral sound bites rather than long-term planning. Here are the questions:

  1. What themes are you recommending to your clients this year?
  2. How do you see markets performing this quarter?
  3. What are your favourite picks/ sectors/ stocks/ funds today?
  4. Where do you see interest rates going?
  5. Where do you think the dollar will be one year from now?
  6. Is now the time to jump into (or get out of) investment X?

These questions and others like them are all predicated on the person being asked making a reliable forecast about what the future has in store. Some might say that these questions are not designed to be forecasts, but rather to draw out opinions and preferences. I don't buy it. If personal opinions and preferences were all that the person doing the asking was after, then what would it accomplish? That being said, most people recognize that advisors merely offer up an "educated opinion" and few people actually expect them to make uniformly accurate forecasts.

Still, as is so often the case in life, virtually everyone has an opinion. The difference is that the majority of "talking heads" that offer up commentary regarding capital markets take themselves far too seriously in their presumed ability to foretell the future. In this case, informed opinion is still merely one person's viewpoint.

Uninformed people often disclaim their views as nothing more than personal, uninformed views. They usually don't take themselves seriously. In contrast, the people who "know what they're talking about" act as though knowing the subject matter gives them some particularly useful insight. It doesn't. It gives them perspective. The most insightful thing these people could possibly share is that even they, the "experts" are offering nothing more than an opinion. In the end, an educated guess is still a guess and people with a PhD in finance aren't all that much better at predicting (for instance) interest rate moves than a random man on the street.

Advisors, if they have contemplated their role thoughtfully, should aim to focus on those things where they can make a real difference. Management of anything requires control. If you can't control something, you can't manage it. No one can control capital market behaviour. As such, anyone who purports to be able to manage portfolios in a way that allows people to take advantage of mispricings, trading opportunities, temporary lapses in judgment and the like is likely overplaying their hand.

Really good advisors (read: STANDUP Advisors) know that Scientific Testing And Necessary Disclosure Underpin Professionalism. In short, STANDUP Advisors ask themselves "what does the research say and how can I best disclose/ explain it to my clients?" Opinions are like noses- everyone has one. Having a nose, however, doesn't mean you'll be able to "smell out" the next great buying opportunity.

John J. De Goey, CFP is a Senior Financial Advisor with Burgeonvest Securities Limited (BSL) and author of The Professional Financial Advisor II. The views expressed are not necessarily shared by BSL.

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