Bruised but not beaten

Congratulations. You have made it to the end of a landmark year.

Just like 1929 and 1987, 2008 will be seen as a landmark year not only for the Australian financial services industry but the global financial services sector. Call it what you may — the global financial crisis, the sub-prime meltdown, the great liquidity squeeze — 2008 has been nothing short of a watershed year.

And what makes 2008 perhaps more memorable than even 1929 is the fact that in the past 12 months we have seen the demise of some of the biggest names in institutional investment — names such as Lehman Bros and the forced rescue of others such as AIG, CitiStreet, Fannie Mae and Freddie Mac.

On the home front, of course, there have been job losses. Scores of people employed in the Australian financial services industry found themselves facing forced retrenchment in the closing months of 2008. It seems likely that further job losses will occur in the opening months of 2009.

Then, too, ordinary Australian investors have seen the value of their shareholdings and their superannuation accounts decline dramatically — some by close to 15 per cent. On current indications, it might be some time before planners can assure their clients that a genuine turnaround has occurred.

But to put all of the above into context, Australian financial planners and investors need to remember that up until the early months of 2008, they had enjoyed one of the longest bull markets in living memory — a period during which even the most inexperienced and naive investor might have expected to have reaped reasonable returns.

Indeed, there are those who have perversely argued that the upside from the current downturn is that it has served to separate the chaff from the wheat. Or, to co-opt that great financial services cliche — when the tide goes out you can see who has been swimming naked.

Thankfully, for most Australian investors, not too many mainstream funds have tanked despite the liquidity crisis and the impact of the Government’s ban on short selling. However, there can be no doubt that a number of fund managers have been found wanting.

Then, too, there is the question of the general health of the financial planning industry. Thus far, there have not been too many casualties, but there are signs that those dealer groups that borrowed heavily to generate growth are now paying a significant price. There is evidence to suggest that, heavily burdened by debt, a number of groups will have trouble surviving the first half of 2009.

The good news, however, is that most of the available evidence would seem to suggest that those people who have consulted a financial planner are weathering the current market turbulence better than most, and that the value of advice is being made abundantly clear.

While 2009 will undoubtedly be a challenging year for financial planners and their clients, it will also almost certainly be a year of recovery, albeit that most pundits are pointing to a long, slow haul back to better returns.

Notwithstanding the likelihood of further casualties, the Australian financial services industry can feel satisfied that as it closes out 2008, it does so in better shape than most of its international counterparts and with the promise of better days to come.

On that note, Money Management closes out the year and wishes its readers a Merry Christmas and a prosperous and peaceful 2009.

— Mike Taylor