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As additional commentary, one must also analyze a situation where there are more than one year's problems  where returns suffered (1973/74; 2000- 2002). While it is not known when such a situation might happen again (referencing 1973/74), it is clear that it could happen. There was a fiduciary duty to inform the client Smith of the eventuality of such a situation and the devastating impact on a portfolio. Further, that such a situation, if not dealt with at its inception, could completely decimate his retirement prospects. Unfortunately, Smith was never informed of such a calamity nor what was necessary to protect him from such an exposure.

It is clear that leaving assets alone would not accomplish his retirement objectives. Simply stating that the "market will always come back" not only provides nil relief but has little real life application to a retiree of limited means who can never recover from such a loss. Or the equally myopic view of "tightening one's belt"- certainly if the adviser has not even demanded a formal budget to know what the bottom line actually was.

The expertise of the planner and company become paramount in not just earning monies but retaining them. They completely failed to do so by either refusing to investigate current economics or were incompetent to do so.  The statement from Samoan Express-  "regardless of the asset allocation strategy you choose and the investments you select, keep in mind that a well-crafted plan of action over the long term can help you weather all sorts of changing market conditions as you aim to meet your investment goal(s)"- is false. Samoan Express and Johnson  are responsible for Brumlow's losses due to a breach of duty in the offering of professional advisory work.

Rebalancing
The Samoan Express Plan identifies rebalancing as a method of correcting imbalances in allocations as time goes forward. I note, under the section, Rebalancing and Reoptimization, "At times, investor's instincts lead them to invest when the market has been good and to pull their money out when the market has declined. While that investment method may feel right, it is a virtual guarantee of trouble. The "gut level" technique may lead you to buy high and sell low. The strategic asset allocation plan provided here can serve to guide you to a disciplined long term investment approach."

The problem is that the "guarantee of trouble" was what can actually happen if one rebalances during a period of  particularly bad economics. Note the term, economics. Market gyrations happen all the time. Market corrections of 10% or so are commonplace and reflect, in part, an inefficient market that is trying to become efficient. However, there are greater periods of uncertainty that are not directly evidenced by the market. They may be represented by periods of economic flux that bear greater impact on the movement of all areas- unemployment, interest rates, capacity, productivity rates, manufacturing and so on. These significant downturns are not market movements per se but severe economic developments that will invariably impact the market since the companies universally mirror economic trends. If the trends continue for an extended period, so will the market. Such trends were identified in literally every statistical element and were amply presented in the press, FED documents, economic statistics and more. That the March 2000 drop was an aberration could have been true- but in going months forward, a softening of all the economic indicators was evident. Caution was advised. That Samoan Express and Johnson  were indicating that buy and hold was a strategy and "confusing" the commentary with marketing. Buy and hold might work for those with an unlimited investment period. But a retiree does not have that luxury. The retiree has a finite time frame since they not only must recoup any losses in a short period of time but are also taking funds out from a depleting asset. Samoan Express and Johnson  were completely aware of the fallacy of buy and hold in this situation but excused the issue by attempting to state that Smith was the "pilot" while the Johnson  was the "navigator". Samoan Express and Johnson  are the sole entities with the (supposed) ability to know the statistical history of the market and economy and in receipt of extensive data covering same.

Here is the analysis of the problem with rebalancing in a down economy. Say you started with 100,000 in the S&P 500 at the beginning of 2000. You lost 9% (round numbers)  in 2000. Now you are at $91,000. Next year, you lose 12% and are down to $80,000. And you are still told to stay in the market because it will come back . In fact, if you were doing rebalancing you would be putting MORE money into a market and an economy that was experiencing a downturn. But we'll just leave it at $80,000 at the beginning of 2002. However now you are down another 22% at the end of 2002 to $62,500. So in three years, you are down about 40% overall in your equities.  But do you know what percentage you have to earn to get back to break even? 61.6%. The odds of high returns similar to the 90's just to get back to where you started with is almost complete folly in a reasonable time frame.  We are in a new period where growth will be much lower. There is a probability that another economic debacle will happen again. It's just pure numbers. It is a statistical fact. That an adviser was not taught past history, the ability to interpret the data or the understanding why it was so important does not release the adviser from the fiduciary duty of addressing such obstacles and applying activity to reduce exposure to the portfolio.  But the losses are even worse with rebalancing. It's not just the fact that money was left to continually lose. It is the fact that, if one rebalanced a portfolio to maintain a specific risk profile, then more money was introduced into the market while the world fell apart.

Let's review another portfolio of 70% stocks and 30% bonds starting in 2000. The 70% of equities might have half of that in large cap funds, 20% in small cap, 15% in whatever. The same with the bond section. But I will just use the S&P 500 for the equities. Let's assume there was $100,000 total in the portfolio at the beginning of 2000 with $70,000 in equities. At the end of 2000, stocks were down 9.1%. So the equity side dropped $6,370. I'll assume the bond side stayed stable. The essence was that the equity side was now too LOW and you would have to BUY another $6,370 of stocks/funds to get back up to the 70/30 split. So now what happens in 2001? The S&P loses another 12%- and as should be obvious, so does the inclusion of the new $6,370. Now the equity side is now down by $8,400. Since you are using the standard rebalancing format, you have to buy $8,400 more stock/funds to build yourself up again. Now go through 2002. The S&P dropped another 22% and your $70,000 is now down another $15,400. You go out and buy another $15,400 of stock/funds to get back to the position of equity and risk that your adviser had indicated was necessary or appropriate for your financial situation. Does this make any rational sense? Why would anyone put more money into an inherently bad economy? Simple. They had been led to believe that the best allocation was one that stayed the course (no change) or to rebalance (normally) at the end of one year. But it should be perfectly clear- if you do so in an economy that is tanking- your risk of loss gets greater since your are committing funds at the worst possible time. Now pundits will say that it is impossible to know when the economy is bad. I'll admit that it is not easy, that it takes a lot of reading, that it requires a background greater than some simplistic designation- certainly far more than the nil insight by brokers, that you have to read material from the FED and so on. So be it- some things are simply hard to do. But the economic mess starting in March 2000 was obvious. The additional loss in November and December 2000 made the economic conditions more pronounced. One could not dismiss the calamity.

Proposed Investment Plan
This section of the plan notes, "Asset allocation provides a strategic plan that builds the foundation for your portfolio's return. Studies on the performance of professionally managed pension funds have found that 91% of a portfolio's performance results from the asset mix of the portfolio." This is wrong because it is NOT performance but variability- an entirely different focus. ("The problem with BHB is that an analysis of variation of quarterly returns tells us nothing about how return accumulates over time." Bill Jahnke)  While corrected on Samoan Express's site now, it still reflects serious errors on the part of Samoan Express and Johnson  in providing accurate material to Brumlow. While it is true that Smith would not grasp the significance of the correction and Samoan Express could state that it is a mistake that did not impact the overall complaint, I submit it is a serious lapse that impacts the entire emphasis that Samoan Express and Johnson  have on providing accurate and properly researched information. The implication in its use is severe. Erroneously quoting a major study in order to solicit business for asset allocation cannot be rationalized out as a simple mistake.

As additional commentary: "The Brinson report did have value- though the allocations might more realistically reflect a 15%, 30%, 70% (or their) 93.6% position of the overall return. Nonetheless, financial planners have almost steadfastly focused on a set allocation of funds defined primarily through the use of computerized offerings by an innumerable number of companies each promising the best allocation. And each effectively suggesting you stay the course since that is what is easiest (Samoan Express in their 1999 commentary on diversification- "Get clear on your personal goals, then buy and hold a diverse portfolio of investments through thick and thin"). I offer this in contrast to staying the course- and I have repeated and taught the issue for years. Statistics show that maintaining a portfolio of securities through the 1973/74 debacle would have eventually returned an adequate return- and over time the stock orientation out classed other allocations of bonds or cash. But they forget one crucial element- the investor holding the portfolio as they watched their net worth decrease over 45%+ in that short two year period. Sure the market came back- but investors did not break even for about 10+ years. The untold emotional turbulence and family and financial strife could, in no way, offset some advisor's statement-"let's stay the course". Literally every one of those investor's would have preferred being OUT of the market and being able to sleep at night. I submit such commentary- "stay the course"-  misses the human element and is inherently flawed from the outset. Maybe institutional investors could have been led to maintain a severely declining portfolio- but I think not. I think the advisor would have been fired for being not only negligent but woefully irresponsible." And from Frank Schmid, FED Reserve of St Louis, "Although we have a fairly good understanding of stock market risk, assessing stock market uncertainty is incomparably harder. The observable past only tells us so much, though, because we cannot tell whether the future will follow the patterns of yore. Uncertainty rises from imperfect knowledge about the way the world behaves."