Hold on for the ride of your life

In one of his recent articles titled ‘Learning from hindsight’, fellow Money Management columnist Robert Keavney provided valuable commentary about current market conditions in the context of what can be learned from past experiences and observations (April 17, 2008, pp 30-31).

The article referred to market events from the late 1980s through to the dotcom boom and schooled planners in the characteristics of market cycles.

Keavney’s comments reminded me of the really difficult business conditions that prevailed for the early years of my own career and how tough it can be to get started in financial planning. And, strangely enough, brought back memories of a pivotal moment in my early days as a racing cyclist.

One Sunday morning in May of 1979, I found myself cycling alone near Armidale in the New England high country of New South Wales. It was bitterly cold, with sleeting snow and rain; my feet were like blocks of ice and with around 80 kilometres in the legs for the morning, I needed more food than was in the back pockets of my cycling jersey. It was my first race in the two-day Tour of New England and as I stood up on the peddles to climb a small hill, my father, who was also my coach, drove alongside me to offer encouragement.

After he did so, with youthful arrogance, I managed to mumble back something like, “I wish I could win a stage”, which, given this was my first race at an adult level, was a blatant case of putting my ambitions way ahead of my abilities.

My father’s sobering retort, “You can worry about winning when you can finish with the leaders”, reflected that I was a good 20 minutes behind the race leaders in a relatively short stage.

Suitably chastened, I retreated to accepting that I needed many more ‘miles in the legs’ and returned to the job at hand of just finishing the stage.

Cycling is one of those sports where at the elite level absolutely nothing comes easy; it’s all about years of long days in the saddle, maintaining a constant mental focus on your objectives while building a reservoir of strength from many tens of thousands of kilometres that can be drawn on when the pain and fatigue inevitably arrives.

Successful cyclists also attest to the power of envisioning their future success.

Ten years after that cold New England morning, as a 28-year-old, my financial planning career began in late 1989 with boundless optimism.

Unbeknown to me, however, was an economic ‘mountain stage’ that would endure for the next two years as the economy was pushed into a deep, but admittedly short, recession by record interest rates.

Investor confidence fell through the floor, with investment after investment seemingly collapsing; somewhat like the Westpoint et al unsecured debenture fiascos of 2006 and 2007.

In 1990, unlisted property trusts froze and commercial property valuations fell in line with ballooning vacancies. There was a short-term run on the Bank of Melbourne simply because it had previously been a building society — echoing the fear that followed the collapse of the Pyramid and Farrow building societies in Victoria.

Business was tough then, very tough. With cash rates at around 18 per cent, why would investors need a financial planner to generate a return? Why would they risk losing most or all of their money like estate mortgage investors had? Why would they put money into unlisted property trusts when such investments could be shut down and redemptions facilities frozen? Why would they trust a financial planner, many (perhaps most) of whom had no formal qualifications?

And then there was the Gulf War in 1991 and cascading share markets around the world. Toss in the world bond market crisis of 1994 and you start to see a pattern emerging.

However, my father’s 1979 comments became a metaphor for my business life and they always rolled around my mind in those early, very difficult years when trying to build a financial planning business from zero dollars and zero clients.

There were several years of uncertainty over whether I would survive in business and lots of introspection about my decision to become a financial planner in the first place. Cash flow was negligible and for over two years I could count my clients on two hands.

Right now there are perhaps a couple of thousand relatively new planners who have entered unknown territory: rising interest rates fuelled by inflationary fears, investment collapses, recent announcements by the regulator regarding unlisted property trusts (hauntingly similar to the regulator’s May 1990 announcement on unlisted property trusts that preceded major failings in the sector), a volatile share market, global growth concerns, rising bankruptcies and falling investor confidence coupled with declining consumer confidence.

Without question, the next few years will be a lot more difficult then the past 16 or so for financial planning businesses.

Looking after existing clients will challenge many, and new clients might well be scarce if confidence retreats too far.

Many planners who are practising today may not be five years from now. Some will simply move on to other careers where the pay cheque rolls in with more certainty and/or where stress levels are lower.

As they meet with or take calls from nervous clients, some will shiver from the cold task of trying to comfort clients. As newer planners reach into their reservoir of professional experiences from which to draw some words of wisdom, many will most likely find it empty.

If the tough conditions continue for anything beyond six months or so — and most likely they will — many will ‘get in the car’ and change careers to retreat from the very bleak and difficult task of managing client expectations amid uncertainty.

Some planners will be taking comfort from the recent rise in share prices, but have perhaps not dared to question if this could be a false dawn.

However, newer planners who make it through the next few years with client bases intact will be much wiser and stronger from the pain of this the next stage of their professional journey.

In years to come, they will instinctively sight the mountain range of uncertain economic conditions when it appears as just a hill on the horizon. They will ready their clients through regular written and verbal communication of what looms ahead as a means of setting expectations. They will have positioned client portfolios fully cognisant of changing conditions and growing uncertainty. And their clients will thank them for it.

Eight thousand kilometres and a year after that cold morning in 1979, I won two very hilly stages and placed third overall in the Tour of New England.

While in the world of cycling these were but extremely minor achievements, it felt good to have stayed on the bike and not withdrawn from the race a year earlier. Similarly, 18 years on, it’s extraordinarily satisfying to have stayed the course and survived in business after such mountains of difficulty in the early 1990s.

Undoubtedly, my business journey is but one of many hundreds, perhaps thousands of similar treks by planners across the nation.

Many other ‘war stories’ remain untold by planners who succeeded by firstly staying the course. People who not only believed in their own abilities but also fundamentally believed they were improving the financial lives of their clients — just two reasons to ‘stay on the bike’.

If you are relatively new to planning, dig deep and hang on, for you’ve entered what could be the defining period of your career and make no mistake, it will not be easy. But make sure you learn from your experiences, for there has to be some wisdom from the pain.

Seven times Tour de France winner and one of the greatest cyclists of all time Lance Armstrong said it so brilliantly: “Pain is temporary. It may last a minute, or an hour, or a day, or a year, but eventually it will subside and something else will take its place. If I quit, however, it lasts forever.”

Ray Griffin CFP is the managing director and a representative of Griffin Financial Services.