Last year at this time, our reporters and editors scanned the horizon, looking for what lay ahead for our readers. After countless interviews with brokers, investment advisors, money managers, sales coaches, market researchers, consultants and clients — anybody connected to the world of retail brokerage — we had a clear vision. And it was one that surprised us: Despite all the terrible events that fall, the ongoing recession, and the grinding bear market, we saw a picture of a better future for our readers.

In the year since we closed the January 2002 issue with that sassy smiley-face cover, we have often thought about that vision of our business. Back then, we put forth the counter-intuitive proposition that this could be the best of times for financial advisors — if they seized the moment. So many do-it-yourself investors needed their first professional advisor. So many baby boomers suddenly had to get serious about retirement planning. And, truth be told, so many clients needed a better broker that we figured it was the best of times to win new business.

We even suggested that after nearly two years of punishing losses, the markets might stabilize. This is where we — and everybody else, it seems — got mugged by reality. In December 2001, a U.S. victory over the Taliban was within reach (and a war with Iraq was not a serious topic), the greatest savants in economics were talking about an imminent recovery, and we were constantly reminded that the market had never posted three back-to-back annual losses since the Depression. It seemed okay to count on things getting better. Certainly, they wouldn't get worse.

Oops. What policymakers, strategists, brokers, clients and journalists did not take into account was that the collapse of Enron, which had brought the energy giant to bankruptcy court in December of 2001, was not the beginning of the end of stories about accounting fraud and corporate abuse: It was the beginning of the beginning.

Who would have predicted that the next few months would bring the collapse of Arthur Andersen? That was May. In June, Tyco CEO Dennis Koslowski was charged with tax evasion on his million-dollar art purchases. Since then, Tyco has been exposed as a personal piggy bank for Koslowski and his colleagues.

But it wasn't until July that we got our formal education in corporate malfeasance — when WorldCom disclosed that it had misstated $3 billion in earnings (now estimated at $9 billion) and, sorry folks, would be seeking bankruptcy protection. The markets quickly sank to below the September 11 nadir and pols blathered about reform. The litany of what Alan Greenspan described as “infectious greed” only grew longer, even reaching the holy of investor holies, General Electric. And, thanks to the feckless Harvey Pitt, there was no sign that regulators were ever going to get ahead of the problem.

All of this was reflected with painful precision in the markets (we've charted the S&P 500 here from December to December, just to remind you). Investors — including those who we predicted would be looking up brokers for professional advice in 2002 — headed for the exits.

Nobody is predicting this December that investors will soon forgive and forget. Retail trading volume, according to Sanford Bernstein, has dropped to below half the level of March 2000, and historians remind us that it took nearly 20 years for retail brokerage volume to return to pre-1929 levels.

But that's all stuff that we can't control. Getting back to where we started last January, we urge our readers to focus on the stuff you can change (if you'll forgive the 12-step jargon). What the experts — and our readers — told us then remains true. You can make this the best of times by seizing the opportunity to be a better broker. As this month's cover story (page 32) points out, selling investment products and executing transactions is a commodity business. Advising clients on all aspects of their financial lives is not.

The big difference between this year and last, is that the need for brokers to jump to the new model is greater. Given the level of transaction volume available from individual investors, there isn't enough commission business to keep plain-vanilla reps employed. Even after this year's cuts, there might be 20 percent more brokers than anybody needs. But there aren't enough competent financial advisors. You choose.

Writer's BIO:
Geoffrey C. Lewis is editorial director for Primedia Business Magazines Financial Services Group.