It has been called the “Lost Decade” for stocks, the period from January 2000 to December 2009 that saw the stock market decline for the first time since the decade that started in the 1930s.
Indeed, $100,000 invested in an S&P 500 index fund in January 2000 would have been worth $89,072 by mid-December of 2009. Adjusted for inflation, the returns are even worse. That initial $100,000 becomes $69,114 at the end of the decade known as the “aughts.”
Previously scorned investments, such as gold and silver, performed spectacularly, while blue chips faltered. Investing overseas was one way to beat the market. Another was to stick your money in bonds, where the gains far outpaced those of the largest U.S. companies.
But as painful as the decade was for investors, financial advisors suffered as well. For every market dip that saw investors sell their holdings and for every customer who waited on the sidelines until the market stabilized, advisors who earn a paycheck based on asset-based fees on assets under management lost out.
In conversations with advisors and industry professionals, the decade that just passed was described as one in which hard work did not necessarily pay off. For all the media spin about the long-term profitability of the market, the aught decade saw advisors struggling to build their businesses and keep customers satisfied.
“The bottom line is that people were not willing to do business in traditional products,” says Lou Harvey, president of Dalbar Inc., a financial services market research firm based in Boston. “If the S & P just dropped 40 percent, it’s really difficult to explain why [clients] should be buying a stock-based mutual fund.”
According to data supplied by the Securities Industry and Financial Markets Association (SIFMA), a securities industry trade group, market gyrations and pressure on advisors to perform led by decade’s end to fewer advisors in the industry. Utilizing data generated by the Financial Industry Regulation Authority (FINRA), the largest independent regulator for all securities firms doing business in the United States, SIFMA says that total personnel in the industry declined from 423,345 in 2000 to 378,946 in 2010, a dip of 10 percent.
Dalbar’s Harvey says the failure of Lehman Brothers and other financial services firms like Washington Mutual and Wachovia has forced many advisors to leave the industry or go independent, where they can keep 98 percent of the fees they generate instead of splitting them down the middle with the firm.
With all the various factors nagging at advisors — from the down market, to worried clients, to firms pushing them to work harder for more profitability — it’s no wonder that the average advisor is unhappy.
“This summer has been horrific,” Harvey says. “The ups and downs in the market have advisors tearing their hair out trying to give comfort to clients who are being whipsawed on a daily basis. The advisors we talk to are down in the dumps about it.”
But it’s not the markets alone that are solely to blame for advisors’ difficulties. According to Joe Duran, chief executive officer and founding partner of United Capital, a private wealth counseling firm, there has been a “colossal” shift in the landscape.