If Ben Bernanke was a financial advisor, I think his problems with FINRA and the SEC would be dramatic.
Let me elaborate.
When a person enters the financial services industry as an advisor, in most instances, they’re given intensive training followed by batteries of testing and continuous education.
They’re schooled in financial goals, objectives, risk tolerance, and product. They learn about capital preservation, cash flow, liquidity, and potential for growth.
They’re also taught that as a client gets older, the need for more income can be of paramount importance.
Most advisors will, much like a doctor, do a full “workup” on the needs and wants of the potential client.
Many retirees over age 65, of whom there are approximately 40 million in the U.S., live off three sources of income: Social Security, pension, and investments.
Some have only Social Security; others receive both Social Security and a pension, while certain retirees are lucky enough to receive an income from all three sources. In most instances, the fortunate retirees with investments are able to supplement their other incomes and establish a standard of living based upon a predictable cash flow.
The financial advisor reviews all these facts and makes his or her recommendations. A few CDs here, a few treasury bonds there, possibly some laddered investment grade bonds, add several income producing non-traded REITs, and cornerstone the portfolio with living benefit annuities, and if any money is left over include a stock or two just for fun.
Everyone then rides off into the sunset with smiles on their faces. Unfortunately, that was five years ago, before Ben Bernanke’s assault on retirees income.
Back then, equal part CDs, treasuries, and corporate bonds produced a 5% rate of return, and now it’s less than 2%. So what does the advisor do if the retiree does not want to expose their capital to risk and has watched their income plummet?
It depends whether or not the financial advisor’s name is Ben Bernanke.
Most advisors have a difficult task which, however, must be done.
And that is convincing the client that a continuation of the same level of spending as before will now decimate the investment capital. In other words, a monumental 60% reduction in investment income must dictate a dramatic reduction in outgoing cash flow if the principal is to be maintained and financial advisors are having that conversation with their clients every single day.
Nevertheless, Ben Bernanke has a much different strategy, namely to roll the dice in the rigged, high-frequency trading game called the stock market.
His approach is to force the abandonment of the principles of capital preservation and simply take a shot in the casino.
Withdraw your winnings as you need them, and much like the dot-com crash, the housing bubble, and the credit card crisis, we all know how that turned out for retirees.
Yet, Ben persists on the same path.
How would the SEC (a federal agency) or the self-regulated FINRA react if Bernanke was not the Federal Reserve Chairman, but simply just another broker?
I’m sure that broker Ben would be looking for another line of work, yet Chairman Ben, for his unconscionable actions is applauded by these very same organizations.
Along with his 40-years of dedication in the financial services industry, Bill is the President and CEO of GPSforLife, has recently authored a highly successful book entitled 44th: A Presidential Conspiracy, publishes his dynamic monthly financial newsletter MacroProfit, and faithfully continues his third decade on the radio with It’s All About Money, which can be heard weekdays on Money Radio in Phoenix and in podcast form on his website (and on smartphone apps) published at billtatro.com weekdays at 5pm Eastern. Bill can be reached via email at firstname.lastname@example.org and on Twitter @tatroshow.