September 8, 2009
After turning in a horrific performance in 2008, many financial-planning firms are heading back to the drafting table—and rethinking how they protect their mutual-fund portfolios.
Last year, the traditional safety-net strategy—diversification—failed as a broad range of investments crashed and burned. Now many planners are going further. They're giving themselves more flexibility to move assets around based on market conditions. Others have sworn off certain asset classes or added some they hadn't dabbled in before.
Why didn't advisers make these changes earlier to potentially spare clients from losses? Deena Katz, a professor of personal finance at Texas Tech University in Lubbock, Texas, explains that most advisers are limited by the guidelines they spell out in investment-policy statements. Any change in policy typically must be hashed out by committee and then agreed to by clients—all of which can take time.