August 18, 2011

What Advisors Are Telling Panicky Clients About Market Volatility: Roundup

Wild markets mean advisors are doing a lot more to reassure clients about their investments

These advisors offer their advice. (Photo lower right: AP) These advisors offer their advice. (Photo lower right: AP)

The market’s wild ride in the last few weeks has created extra work for advisors—who have spent a lot of time reassuring panicky clients about their investments.

What are advisors and other finance professionals advising clients to do?

Fund managers such as Brian Lazorishak, senior portfolio manager for the Chase Mid-Cap Growth Fund (CHAMX) and Chase Growth Fund (CHASX), are calming fears by shifting toward less economically sensitive stocks with more predictable and defensive earnings patterns.

“The reason we have a disciplined approach is to offset the ego and emotion that’s involved in the market,” said Lazorishak (whose firm, Chase Investment Counsel Corp. of Charlottesville, Va., is unaffiliated with JPMorgan Chase & Co.).

“Even sophisticated investors can panic and pull out at the wrong time. We tell clients that we stay process-driven without getting too caught up in the economic news. We also remind them that they’ve set equity ranges based on their risk tolerances,” says Lazorishak, noting that stocks across a wide range of sectors and asset classes have been “highly correlated with each other.” In other words, he says, a mid-cap U.S. consumer stock like Dollar Tree is seeing the same market movements as a European bank during this period of volatility.

And wealth management firms such as Genworth Financial Wealth Management have launched full-scale special communications programs that include panel calls for advisors.

“The goal of the panel call with advisors was to frame how our platform is positioned to help them manage their clients, but then to also offer them access to portfolio managers or strategists to provide insight on the global economy and markets,” said Mike Abelson, Genworth’s senior vice president in charge of asset allocation strategies.

As for the members of the fee-only National Association of Personal Financial Advisors, NAPFA advisors serving both institutional and individual investors also are urging clients to stay calm and to remember that their portfolios are planned to withstand the storms of market volatility.

Based on a round-up of NAPFA members’ emailed responses that AdvisorOne received this week in an informal poll, here’s what advisors say they are doing to advise their clients during this time of turmoil:

Donald Askey, certified financial planner, Provident Advisory Group, Newburyport, Mass.

Donald Askey, Provident Advisory GroupAskey said his firm sent two e-messages to its 100-plus clients this past Friday and the Thursday before. The messages urged clients not to act on emotion, and reminded them that Provident is taking small steps to strengthen allocation at this time of low prices. No selling would be done without a sit-down and re-evaluation of the client’s big picture, he said.

In one of the messages, Provident told clients: “As your financial adviser, we are not only sensitive to your concerns about recent turmoil in the market but we are also responsible for providing you objective advice…. If you believe that your investments are inappropriate for you for whatever reason and that you are no longer on the course we charted together for you, then we urge you to come in and we’ll spend the time you deserve and determine whether a course correction is in your best long-term interests right now.”

Rett Dean, principal, Riverchase Financial Planning, Lewisville, Texas

Rett Dean, Riverchase Financial Planning“Proactivity is the key,” Dean said. “We called and spoke with all clients last week while the markets were so volatile.

“We reminded them of a couple of things: 1) This is why we diversity holdings. 2) Because we do not do dollar-based retirement planning but rather goals-based planning we could stay focused on what was most important to the client. 3) Time Frame. Many clients see reaching retirement as the finish line, when in fact it’s really just the beginning. We have to keep clients well allocated so that the years of retirement are not impacted long term by making emotion based short term moves.”

John Gugle, principal, Alpha Financial Advisors, Charlotte, N.C.

John Gugle, Alpha Financial AdvisorsNormally, Gugle sends a client letter the first of every month, but with the recent events in global investment markets, he “felt it was imperative to get my thoughts out to all of my clients” and sent a letter on Aug. 11.

“My advice is that this is not a repeat of 2008 and that we are simply experiencing a slight slowdown in growth, but not a full-fledged recession,” Gugle said. “I point to continued M&A activity as well as a report last week that insider buying was at its highest level since March 2009. I also laid the blame for the extreme volatility on the high-frequency computer trading programs. That is what was causing huge intraday shifts, which undermines retail investors’ confidence, much like the flash crash of May 2010.

“When investors cannot comprehend what is going on in the markets, they blame the system and become convinced that the investment markets are rigged.  Sadly 2008 was such an extreme event in the market that many of my clients are skeptical of the recovery and seem to get anxious over the slightest bad news.”

For younger investors, Gugle noted, he has been advocating this pullback as an excellent buying opportunity if they have excess cash available for investment.

Rick Kahler, president, Kahler Financial Group, Rapid City, S.D.

Rick Kahler, Kahler Financial Group“The challenge for financial planners is to reassure clients that the roller coaster is safer than it was last time,” Kahler said. “For the past two years, I’ve promised my clients markets with greater volatility and another crash. I’ve also discussed ways for them to prepare for it.”

If a client took appropriate action the last time the markets crashed and didn’t panic, they—like perhaps 90% of investors—are in better shape than ever to weather this crash better than the last, Kahler said. Why? Because portfolios are slightly more conservative, investors have already gone through, and survived, two market crashes since 2000, they’ve created a cash cushion, and taken advantage of the recovery of the past two years to diversify their portfolio among asset classes.

Lisa Kirchenbauer, president, Omega Wealth Management, Arlington, Va.

Lisa Kirchenbauer, Omega Wealth ManagementIt was “much ado about nothing,” Kirchenbauer has told clients, given that the market has recovered back to where it was before Aug. 5.

“I had prepared my clients for a volatile summer in our Q3 letter and I have told them in the past that the markets can often get very volatile in the middle of the summer only for us to end up exactly where we were when the summer began,” she said.

“At this point, the main message is hold the course, expect more volatility, maybe even through the elections next year, and be grateful for your bond investments.  This is also a time to be thoughtful and conscious about your spending since we really have no idea what to expect from the markets in the next few months.”

Lee Munson, chief investment officer, Portfolio LLC, Albuquerque, N.M.

Lee Munson, Portfolio LLCFor Munson, the major trend for his firm is a focus on risk budgeting.

“Opposed to a buy and hope or dubious pie chart, we had straightforward conversations about how much risk the portfolios were holding. The bottom line is: if the S&P 500 is twice as risky as the historical norm — should you really own a full position, or half?” Munson writes in an email.

“While this last week has the market raging back up — unless you are trading week to week (which we do in a hedge fund), a long-term portfolio needs to keep risk constant. You can't do that rebalancing once a quarter to a static pie chart where risk is understated using

a 30-year average based on expected return. In short, pie charts lie. We help clients understand the current risk and keep their long-term risk budget constant.”

Troy Sapp, certified financial planner, Commencement Financial Planning, Tacoma, Wash.

Troy Sapp, Commencement Financial PlanningSapp is telling clients four main thoughts during the market turmoil:

On measures of fundamental valuation, equities are now trading very near what has been the historical mean.  Equities appear to be fairly priced.

“If we want to buy low and sell high we need to ask ourselves what the world would look like during each of those times, then develop processes to effect that goal.”

Equities have always been volatile, and long term investors have been rewarded for taking on this risk.

“I have developed Investment Policy Statements (IPS) for each of my clients.  The IPS identifies risks, then identifies strategies to hedge against each of them that we can.  Anxious clients often want to revert to cash, but the one thing I am certain of is that cash will be worth less in the future than it is today, especially since countries have historically tended to inflate their way out of debt problems like most of the world is facing now.”

Robert Siegmann, chief operating officer, Financial Management Group, Cincinnati, Ohio

Robert Siegmann, Financial Management Group“With the market volatility and what we perceive as an emotional disconnect between investment decisions and the underlying economic fundamentals, we are advising clients to invest idle cash and rebalance portfolios to purchase equities on sale now,” Siegmann said. “While equities could get cheaper in the short run, we are comfortable committing long-term investment dollars to equities today.”

For more about what advisors are doing to reassure clients, read AdvisorOne.com bloggers Ben Warwick, on Rebalancing Opportunities as Stocks Plummet, Treasuries Rise, and Mike Patton, on What I Sent Clients in Light of Market Volatility.

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