The Magical Cure for Our Investment Woes

American Funds has recently put out a concerning report on their website. It is aimed at advisors who are looking for ways to approach their clients to help smooth over any hard feelings from the pain and harm inflicted during 2008 on buy-and-hold mutual fund portfolios.

My first question is: Where were they 6 months ago to help mitigate the apparent disaster that was coming? Too harsh? Okay, let’s give them some slack…how about 2 months ago?

Take a look at the “high-end” process being used to bring investors back into the market. Essentially, it appears that investment professionals need to spend some time with their clients to discuss what happened, find out what questions they may have and once that is accomplished, magically restore confidence. This expertly designed plan will some how provide the peace of mind to help sell more fund shares investors put more money to work. (I can hear them now: Get your red hot front-end load, only 5.75% charge while supplies last!)

Here is their magic formula:

We realize this year’s annual review will be a crucial meeting for you and your clients. As you prepare for and conduct these meetings, we hope you’ll find the 4-Step Process for Client Reviews helpful in addressing your clients’ concerns and rebuilding their confidence in the investment markets. In this piece we identify American Funds resources and online tools you can use to guide your clients through each step. These four steps include:

1. Identify concerns and questions.
2. Provide market perspective.
3. Restore confidence.
4. Implement opportunities.

Depending on the client, you may want to devote time to go over the broad investment perspective during your annual reviews.

Then, they provide a few “educational resources” that can help with client discussions.

I suppose that #3 is accomplished once the advisor states with confidence: “Everything will be alright.” (See Placations for a Financial Crisis: The Planner’s Handbook) Is it me or is this just a lame attempt to sell more stuff?

Morningstar snapshot for the American Funds Family. Truth be told, I actually like the group, as their hybrid multi-manager approach has had done an excellent job for investors - Until 2008 of course.

Comments

[Anthony Alfidi:]

Restoring confidence is not merely a sales tactic. Investors who might otherwise make rash decisions need an advisor who can put short-term distress into a long-term perspective.

BTW, American Funds aren't all that bad as far as actively managed fund families go. Their funds (plus Dodge and Cox) are probably some of the most well-run vehicles on the street, and they have pretty long track records.

Full disclosure: I do not hold American Funds or Dodge and Cox funds. I'm a do-it-yourself investor, but I know that a lot of people aren't. They're the ones who need an advisor's reassurance.

2008 Dec 30 06:20 PM

[Steven Hansen:]

Andrew, thanks for sharing this. I have mixed feelings about this. An investor is supposed to be doing his own analysis and not relying on the fox to guard the sheep. on the other hand, to tell an investor to stay invested when you know the market is going downhill (so you can make your profit) is just plain deceitful.

this to me is the primary reason to buy etf's. if you have a fund manager as a friend, you have no friends.

2008 Dec 30 09:40 PM

[pderas:]

American Funds' products went down during the dot-com bust too (Your chart doesn't go back far enough). As a shareholder, I never received any such warnings, then or now. So I don't expect them.

As a watcher of the economic news, and a business owner in a field ancillary to real estate, I pulled all my investments from my mutual funds in November '07 and put them into Money Market Funds.

I am far from a forecaster, yet I could see we were in for a rocky road ahead all the way back then.

Apparently there weren't many like me.
I am old-school and believe I need to be able to understand my own investments.
As a result I still have my cash and am able to jump back into the market now with my slightly appreciated dollars buying far more than I sold.

With so many financial services companies on the skids, I appreciate American Funds' solid approach to investing and (grudgingly) pay my 5.75% to partake because I am no stock picker.
At least my cash hasn't gone "poof" like so many others in the last few months.
I'm watching them though, and won't hestitate to whip my funds out of there at the first sign of instability.
Haven't seen it yet.
Go American Funds!

2008 Dec 31 05:13 PM