There’s also been a delicate balance to ensure that investment advisors have the best interests of their clients at heart – with compensation rates tied to fees and supplemental product sales as much as it is to portfolio performance, many are questioning financial advice in today’s market.
Add on top of this the fact that a large number of advisors have been part of companies, such as Merill Lynch, which are now undergoing restructuring, and you have a recipe for uncertainty. Lynch has been perhaps the best known of all of the brokerage houses which have ventured into a broader set of portfolio and wealth management products, including advisory services that relate to everything from insurance to retirement accounts.
Many saw these moves as potentially distracting from the core mission of brokers to get their clients the best stocks at the lowest transactions cost, and watching the market so their clients could sleep well at night.
Part of the issue here relates to the breadth of coverage throughout the investment firms, which now have divisions related to most segments of the industry. Many believe that Merill Lynch, for example, has potential conflicts of interest as it relates to advisory services they provide to institutional investors, corporations and individual investors alike (see Market Watch).
Lynch, like many investment banks, played a key role in investing in securitized mortgages, which were at the heart of the financial troubles we now find ourselves in.
Now, we find more and more investors are losing more sleep each night, wondering: can I trust my financial adviser during these times when they will seemingly do anything in search of increased profit? Lynch is now part of an even larger firm, Bank of America, which will have an undetermined effect after the restructuring is complete.
While the wheels on Wall Street keep moving, individual investors are increasingly wondering what they can do to protect their wealth as assets from equities to commodities are falling off the charts. The first step to take is to do an objective analysis of your portfolio, and ask your broker some tough questions about diversifying your holdings to limit your risk.
Always try to keep your costs low and work through diversified mutual funds rather than trading directly, as transactions costs and fees can add up if you do piecemeal reallocations.
You can also find independent financial counselors who are not tied tot he rigid commission based structure of many investment firms, giving them more time and independence to focus on the best interest of their clients. Seek out a firm that takes a longer view on returns, with an aim toward protecting and building wealth, rather than seeking the highest return and chasing trends.
Looking at the market today, with negative net returns, not to mention the negative net book value many have on their real estate (which is the largest holding in many people’s investment portfolio.) Resist the temptation to exit the market entirely, especially if you have funds in a 401K, as there are early withdrawal fees and it can be difficult to build up those assets again – instead, take time to work with an independent advisor to re balance your portfolio going forward.