When it comes to mutual funds, there is a lot more to success 
than just finding a good one. Sad investment stories like the 
following are all too common. I hope my sharing it with you 
will help you avoid making the same devastating financial 
mistake one of my former clients made.

This story begins during the height of the investment madness 
in 2000, just prior to the bear market. I had been managing an 
IRA account for "Bob" for around six years, with a better than 
average record of success. So I was surprised when Bob sheepishly
called in July, 2000 to let me know he was transferring his IRA 
account, which had done particularly well during our latest Buy 
cycle going into the year 2000.

However, his tax preparer, a long time personal friend of Bob's 
wife’s, was now also offering investment services, having 
recently received his Registered Representative’s license.

Fast forward to the end of September. It had become increasingly 
clear to me that the Bull market had run its course. So, in 
accordance with the Sell signal from our trend tracking 
methodology, we sold all of our mutual fund positions on 
October 13, 2000 and went 100% into money market. (See my 
article “How we eluded the Bear in 2000” at 
http://www.successful-investment.com/articles12.htm). From our 
safe haven we watched the market crash and burn, causing most 
other investors to sustain double digit losses eventually 
reaching as high as 50 - 60% of their assets.

In 2002 Bob unexpectedly stopped by my office. As it turned out, 
things had not gone well at all with his IRA investments. As 
most advisors would have done, his tax preparer/advisor had 
quickly moved all of Bob’s assets into a variety of “load 
funds.”

Of course, being newly licensed he was clueless (as were many 
licensed advisors) as to market behavior or analysis of any 
kind. The end result was that Bob’s portfolio lost in excess 
of 50% over the next 2 years. (Not to gloat, but my clients' 
losses in the same period were non-existent.)

Unfortunately, the degree of loss Bob sustained was experienced 
by many investors who did not follow a disciplined and methodical
approach.

What I find particularly distasteful is that Bob's tax preparer 
misused his position of trust. He made financial decisions that 
he was not qualified to make, though his license implied that 
he did know enough to make them. So now we know what a piece of 
paper is worth.

This is no different than letting a newly graduated medical 
student with a fresh MD behind his name perform heart surgery. 
Or, hiring a new MBA grad to Chief Financial Officer of a 
Fortune 500 company. Yet the financial services industry allows 
someone to get a license (after a fairly short course) and to 
immediately start making incredibly important and far reaching 
financial decisions for anyone he or she can sell their service 
to.

This is a worrisome trend in this industry. A CPA friend 
confirmed that he has been approached many times by firms 
wanting him to offer investment services.

Why? It’s easy money! Accountants and tax professionals have a 
great business base. They are in a unique position of trust, 
because of the information their clients disclose to them. 
Whether they are employed by a company or they maintain an 
individual practice, there is probably no other person (other 
than your spouse) who knows as many intimate details of your 
financial life as your accountant/tax preparer.

To abuse this trust for personal gain—no matter how noble the 
motive may appear—is a total conflict of interest and a huge 
betrayal.

The bear market of 2000 has shown that investing must be a 
disciplined endeavor. Even most professionals have failed to 
recognize this. What busy accountant, in the middle of tax 
season, can put the necessary time and attention to a volatile 
investment market that may require action at a moment's notice?

As for Bob, he’s still with his accountant, and in the same 
investments that brought his portfolio down. He’s hoping for 
a miracle recovery. As of this writing, the stock market is 
engaged in something of an upswing and Bob, I'm sure, is getting 
his hopes up that he will recover some of his losses. However, I 
shudder to think that this rally may come to an end and the bear 
market resumes. Where will Bob be then?

At 58 years old Bob is still playing Russian roulette with his 
retirement. He's apparently unable to make a decision to move 
to someone who has the ability to make sense of market trends 
and the discipline to follow the signals they communicate. This 
is a decision that will have a profound affect on his financial 
future—and will determine whether his story has a happy or sad 
ending.

© Ulli G. Niemann