PRACTICE MANAGEMENT:'Stay the Course' Won't Make Clients Stay
By Kristen McNamara
A DOW JONES NEWSWIRES COLUMN
26 March 2009
Dow Jones News Service (c) 2009 Dow Jones & Company, Inc.
NEW YORK (Dow Jones)--Simply advising clients to stick with the plan isn't the best way to ensure they stick with you.
During past periods of volatility, financial advisers reminded jittery clients to focus on their long-term goals and existing investment strategies. The severe market downturn that began last year has, however, threatened many investors' plans and eroded their confidence in both financial markets and financial professionals.
The challenge for stockbrokers and investment advisers now is helping clients to regain a sense of control without completely overhauling their investment portfolios.
Investors want a kind of "active management," said Cary Greenspan, senior vice president at PNC Financial Services Group Inc (PNC) wealth management division and director of investments for the Washington, D.C., area. "Active management doesn't necessarily mean active transactions."
Making changes to portfolios for the sake of change isn't the goal. Demonstrating responsiveness to client concerns and fluctuating market conditions is. This might mean rebalancing portfolios, adjusting asset allocations or changing the types of investments clients hold within an asset class. Explaining to clients what action you're taking - or aren't taking - and why is also important. "'Stay the course' are the three worst words you could say to a client," said Ross Levin, founding principal of Accredited Investors Inc., a financial planning firm in Edina, Minn. "Most people want to feel something is being done."
The financial planners at Accredited Investors have been meeting more frequently with nervous clients in recent months to discuss their feelings about the market downturn, said Kathleen Longo, a principal at the firm.
One semi-retired couple, for example, has been coming in every other month. They have become increasingly worried about their investment losses even though their planners have showed them they have enough money to live out the retirement they had envisioned, Longo said.
To address their concerns but still position them to benefit from the stock market's eventual recovery, the planners shifted an additional 10% of the couple's portfolio to fixed-income products, Longo said. The planners are making similar adjustments for other clients who can't handle the dramatic market swings.
Another recent retiree has enough cash to last her three years but was up nights worried about her investment losses. Longo and her colleagues reluctantly agreed to sell equity positions and add two more years of cash to the client's portfolio, after warning that this would reduce her overall returns and retirement income.
Addressing client concerns, including irrational ones, is particularly important now. Giving clients a sense of control so they sleep at night while keeping their plans on track frequently involves compromise, such as the incremental portfolio adjustments Accredited Investors is making. When Ira Fateman's clients tell him they are too scared to open their investment account statements, he responds: "I'm looking at them." Fateman, a certified financial planner with SAS Financial Advisors and principal with Client Relationship Training in San Francisco, shifted clients to federally insured money-market funds when Reserve Primary Fund's net asset value fell below $1 a share, spurring investor panic and calls for redemptions.
Early this year, he moved clients from Treasury securities to lower-rated but higher-yielding municipal and corporate bonds. He has also been discussing the possibility of refinancing homes as interest rates have fallen. He phones and emails clients frequently to check in and discuss his recommendations.
Financial advisers must give clients "a sense that somebody is in control," Fateman said. "The most important thing is to be engaged and help your clients to be engaged."
(Kristen McNamara writes Practice Management, a column that looks at ways financial advisers can build and improve their business. She can be reached at 201-938-5392 or by email at kristen.mcnamara@dowjones.com.)
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