Financial advisors faced with low yields and market volatility have grown “spineless” over the last four years as they let nervous clients tell them how to invest, says Bob Auer, a former Morgan Stanley (MS) broker who now runs his own mutual fund.
“Advisors have become spineless, and clients are leading the conversations. After four years of bad markets, advisors are just in survival mode,” said Auer, who founded Indianapolis-based SBAuer Funds LLC along with the Auer Growth Fund (AUERX) and now serves as its lead portfolio manager.
As an RIA himself, Auer (left) says he thinks like an advisor, so it disturbs him to see his friends at both wirehouses and independent shops giving in to clients when they should show leadership in bringing clients to sound, long-term portfolio strategies.
Advisors Are ‘Beaten Into Submission’
“Today, the pressure is so great to preserve the client’s capital. Advisors want to do what’s right, but they’re not going to do that. The clients hear about the fiscal cliff, Europe and the Middle East, and they’re bombarded. Advisors play along. They’ve been beaten into submission.”
(Auer’s willingness to be an outspoken opinionator may stem from the fact that he was a stock market columnist for the Indianapolis Business Journal and wrote a weekly full-page column for eight years from 1996 to 2004.)
The U.S. stock market is at a five-year high, but clients’ satisfaction with advisors is at an all-time low, according to Auer, who added that the stampede into bond funds has created an overcrowded trade, “or advisors have given up and are just investing in exchange traded funds.”
Auer warns that advisors who lack leadership are ultimately setting themselves up for a fall.
“When the market does turn around, advisors will be in passive mode, and they’ll lose their clients anyway,” he said.
To be sure, Auer is sitting in the catbird seat because he left Morgan Stanley at the perfect moment. He departed his position as an investments vice president on July 19, 2007, at the top of the market when the Dow Jones industrial average hit its penultimate all-time high of 14,000, just behind the all-time high of 14,165 on Oct. 9 of that year.
“I typed up my resignation on that day, when every account I had was at a record high,” Auer recalled Thursday during a visit to New York.