Chuck Jaffe had commentary about a FPA meeting and how the experts didn't necessarily agree on how to allocate monies

RE: "Experts" on right mix

Dear Mr. Jaffe

Allow me some latitude in my commentary since I have dealt with the financial planning industry in rather harsh terms for years. However, I have one of the strongest backgrounds in the field and have committed most of my time trying to get the various entities to recognize their fiduciary responsibility to the consumer. Hasn't happened yet.

See efmoody.com for material- the resume is also available from the front page

My point to your article is the continuing reference to financial planners as professionals or experts. Why? When looking at brokers from any B/D firm, they have had one class in money- the Series 7. That's pretty much it. Continuing education has been required since the mid 90's, but it is generally a rehash of old stuff. More importantly, the fundamentals of investing have never been taught to a broker- alpha, beta, correlation, diversification, standard deviation and on and on. Why? Because it is not tested for the exam. The idea that a broker/financial adviser could provide professional insight to allocations is problematic at best.

Of course, one could use a CFP- the designation du jour. Having taught these classes as well, it is about the same as one semester in money. Though the investment element is considered to be more definitive than the Series 7, one analyst put it very succinctly that "There are 141 topics in the CFP investment education module, and not one of them addresses how to find the best portfolio for your future dollar goals." Admittedly there is an art of selecting funds- but if an "expert" is nothing more than essentially one semester on money, I categorically state that that is inadequate for almost all purposes. The marketing element of the Board attempts to define the professional status of CFPs as equivalent to "Doctors, lawyers, nurses, architects" (their quote, not mine) yet a CFP does not have to have a degree in planning. Why on earth would some consumer stoop to this level and expect thorough planning? Or investment advice? It's primarily because of the limited focus that journalists put on knowledge and competency when continually interviewing those with limited backgrounds. Again, I state that the selection of funds is absolutely part art. But ‘diversification' as defined in the CFP material is wrong; standard deviation is not taught- hence risk is not defined. Where is correlation? Where is asset allocation?

In validating the absolute lack of professionalism- (knowledge primarily)- there is no question that the consumer has also been ill served overall. Over $1 trillion was lost in 2000- 2002 by rules of thumbs that were simply not valid. The ‘personal roadmap' you mention is a nice homily but says little since the consumer is simply out to lunch with an understanding of risk. The comment about volatility is valid- they get scared- but they are oblivious to the fact that as they hold onto their portfolio, the odds of a significant loss is growing every single year. Rebalancing does not obviate the problem.

Sleeping well at night while in a drunken stupor does not support anything. The idea that a portfolio strategy that totally refuses to address the real world of risk of loss of their monies is inconsistent with professionalism. As an example, if the standard deviation for one year was 20% for a portfolio and you held it for five years, the standard deviation decreases to 8.94%- an apparent decrease over 55%. That's what literally every investment plan addresses. They show that risk goes down. A fraud. The standard deviation of the dollar RETURN (that's their money) is INCREASED to .626. That means they can statistically expect a loss of 37% of their monies over that same period of time.

I do agree that consumers need to find a strategy that they can live with. But do you really believe that they understand just how much of a risk they are taking? Do you think this has been identified in ‘investor expectations'. Did you have any of the planners you interviewed express this problem? If not, why not? A roadmap is fine. But if the further you drive the more bridges that are apt to be out is not a fair way to suggest knowledge or competency by either entity.

I have not yet seen a B/D investment plan that is correct- meaning that risk is identified properly. I have never seen a financial plan by a professional that has done it correctly. Risk is not defined in your article so that consumers can understand just what the real world is really like. I think you should do so. Their retirement is at risk.