What Advisors Do When Wrap Clients Get Jittery
Most advisors agree that involving ones clients in asset allocation is an integral part of designing a mutual fund wrap. However, the current economic downturn has many investors prematurely ditching their carefully designed long-term programs, despite having taken part in choosing the funds, says Michael Bonevento.
With 90% of his business as an American Express senior financial advisor in mutual fund wraps, a significant number of the long-term relationships Bonevento has cultivated are showing signs of strain these days.
“Every advisor is unpopular right now,” he says. “Probably our clients dont believe anything we say.
“Mutual funds are not doing well now. Thats just a function of a slowing economy–people get concerned about the possibility of losing money and mutual funds get sold.”
As defined by Cerulli Associates, a Boston-based research and consulting firm, a mutual fund wrap is a program “designed to systematically allocate investors assets across a wide range of mutual funds.
“Services include client profiling, account monitoring and portfolio rebalancing. An asset-based fee of 1.25% for example, is charged instead of commission. Account minimums typically range between $10,000 and $50,000,” Cerulli says.
When clients want to sell mutual funds earlier than they had planned, Bonevento, who works out of the Wall Township, N.J., American Express office, asks them whether they still have the same financial goals they had when he initially worked with them to plan the wraps. If the answer is yes, he tells them that abandoning the plan early in a tough spot is typically a bad idea.
In explaining why they should hang on to their programs over the long term in spite of sagging values, he goes over with his clients figures he can factually measure, including interest rates, inflation, energy costs, unemployment levels, corporate profits and the value of the euro. He mentions that the economy has faced similar conditions before and has eventually rebounded.
Bonevento also explains that being a successful long-term investor means remaining faithful to ones portfolio in good times and bad.
“When the market was doing well, everyone was a long-term investor,” he says. “Now, everyones leaving the market. Success comes in the long term.
“When the economy suffers is not the time the investor should be panicked. As long as nothings changed from their financial perspective, theres a very good chance they should stay where they are,” he says.