Advisor Forum update: Nick Murray sees rare opportunity for advisors in 2004

(November 19, 2003) The religious imagery of the title was well suited, as author and business coach Nick Murray delivered his lecture Opportunism After the Apocalypse with the zeal of a preacher in a revival tent. The congregation at Advisor Forum in Toronto soaked the sermon up in near reverential silence.

“There are only two kinds of people in the world: people with too much class to say ‘I told you so,’ and people like me,” said Murray, an advisor favourite whose speeches always attract large crowds.

At last year’s Advisor Forum he told the audience the bear market was either already over, or so close to being over that it didn’t matter to one’s practice from a strategic standpoint.

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Murray predicts that 2004 will be ripe with opportunity and that an advisor needs to actively pursue new clients before the markets instill complacency. He says opportunity is a force of nature, like electricity, which is always present but needs to be harnessed to be of any use.

“You will never again find so many people, with so much money, so consciously, actively desirous of quality financial advice and so disappointed with their previous advisor,” he said. “Especially if their previous advisor was themselves.”

He cautions that 2004 is only about 1,600 professional hours long, warning advisors that the windows of opportunity will start to close quickly. It will only take one year of decent market returns, let alone outstanding returns, he adds, for investor complacency to creep back.

And one step behind complacency is what Murray calls “the foul fiend,” do-it-yourself investing. The year 2004 will be the “sweet spot” for the advisor industry, the interim between the horror and complacency.

“People will still be chastened enough by the experience of the past four or five years, to be willing to listen to reason, to be willing to listen to good counsel and to follow it.”

Murray says the reasons for a household’s financial success can be broken down into 55% planning, 30% asset allocation and 15% avoiding big mistakes, like ignoring the advice of their advisor.

“All the rest is selection and timing,” he jokes. “And what do you spend a third or a half of your time working on? Stop it. You can’t control it and it doesn’t contribute anything.”

He says a financial plan is most important because it reminds the client that they are working toward a goal and gives the advisor a document to point to when the client starts to stray from the plan.

“My experience of people with plans is that they can be induced to continue to act on the plan,” Murray says. “Financial success is almost purely a function of acting as opposed to reacting. When I have a plan and I continue to act on it through my life … I achieve all my financial goals.”

Without a plan, the client has nothing to act on and will simply invest by reacting to the latest scandals and market swings.

Murray says asset allocation is also important, but that most people use the term as a justification for market timing. Since a proper financial plan is not only generational, but trans-generational, asset allocation under that plan should also be based on an extremely long time horizon.

He points to actuarial projections which show the average couple will live 30 years past their retirement. The risk is not losing their money, but outliving their money, as inflation erodes purchasing power by an estimated 3% per year. At that rate, it will take $2.40 at the end of the 30 years, to buy what cost $1 at the point of retirement.

He says there is only one asset class that can historically be shown to provide the returns needed to offset this erosion of purchasing power. It might make clients uncomfortable, but advisors need to explain the real risk of outliving their money.

“Tell your countrymen, without ceasing, that if they think in retirement, bonds are safe and stocks are risky, it’s the other way around,” he says. “How would you fail to achieve all your long-term financial goals in an asset class that’s been compounding at 10 to 12% since Lindbergh flew the Atlantic?”

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What do you think of Nick Murray’s insights? Are advisors in a race against market complacency? Is there value in product selection and timing? Share your thoughts about this topic in the Talvest Town Hall on Advisor.ca.

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For details on the last Advisor Forum of 2003 in Halifax, please visit the Advisor Forum Web site by clicking here.

Filed by Steven Lamb, Advisor.ca, slamb@advisor.ca

(11/19/03)

Steven Lamb