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The Way Ahead

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(This is the cover story from Investment Advisor magazine’s October 2001 issue. See complete coverage of Remembering September 11 on ThinkAdvisor.)

With the dust not long settled over the remains of New York’s World Trade Center, we emerge from the surreal state into which most of us were suspended during the terror attacks and their aftermath. We grieve for family and friends and co-workers and business associates. We ponder what the tragedy has meant–emotionally, psychologically, intellectually, spiritually, practically, geopolitically, financially–and what comes next. September 11, 2001 was, in German Chancellor Gerhard Schroder’s words, “a day that would change the world.” We realize that nothing will ever be the same. We move forward from this painful turning point in U.S. history, and we act with resolve, believing that, as Pope John Paul II said on September 12, “Evil and death will not have the last word.”

The attacks that shook the foundation of America’s financial center have failed to break the spirit of Americans and those in the financial community so purposely affected. Consumer confidence, vital in keeping the economy afloat in the wake of the present disaster (occurring as it did during a floundering market), has been dealt a blow, but may not be irreparably damaged. As planner Sameer Shah of Shah & Associates in Tampa, Florida, notes, “The real economic impact [of the attacks] is minimal–we have an $8 trillion economy–but one of the psychological impacts will be the reduction of confidence.” It is against this that the government, the nation—and advisors–must proactively guard.

Like Shah, advisors and planners nationwide who responded immediately to the crisis by phoning and e-mailing clients did so in an effort to assuage clients’ fears and underscore the goal of level heads prevailing. As Susan Addis of Addis & Hill in Wayne, Pennsylvania, says, “Clients understand that these events are beyond our control as advisors–as long as you provide more to a client than just investment returns.”

For the good of the country–and client portfolios–planners are advising their charges that the best thing they can do short term is stay the course, and do nothing at all. They are explaining to clients that while the market may experience extreme volatility and that a recession is a possible but not foregone conclusion, it is more likely that selling pressure will be short-lived and over time the market and economy will rebound strongly–if history will obligingly repeat itself.

Planning trade organizations launched their own emergency initiatives. Rather than giving specific advice to members, Financial Planning Association president Guy Cumbie, in a September 12 conversation from his hotel room in San Diego where he was dismantling the cancelled FPA Success Forum, reported that the organization was also busy creating different venues to bring together FPA members to share their thoughts, experiences, client stories, and resources.

FPA set up a link from its Web site ( called “Conversations in Crisis,” initiated Chapter Leader call-ins, and held two open teleconferences. While some advisors who participated expressed confidence in their established long-term planning strategies, others were more skeptical, voicing also the stress they felt at having to make decisions for clients in the tragedy’s aftermath, wondering whether their risk tolerance assessments remained in any way valid. In fact, says advisor Bob Morris of Morris, Whitton & Associates in Hillsboro, Oregon, the “main problem seems to be the majority belief in asset allocation and that money should be invested at all times.” His firm has more than 95% of its clients’ assets in cash, due to “the uncertainty in the global markets.”

Steve Kanaly of Kanaly Trust Company in Houston, and head of the National Association of Personal Financial Planners, reported September 13 that a special response from NAPFA was “underway.” He sees a silver lining in the cloud of the tragedy, calling it a wake-up call to all Americans. “Douglas McArthur said there is no such thing as security, just opportunity,” says Kanaly, noting that the country has had 10 to 15 years of “pretty nice security.” He believes that in the “emerging new climate,” planners should be advising clients to allow for almost zero monetary help from their employers and the same from the government. “Americans must start learning what a respectful rate of return is on their money and how to achieve that,” he says. They need to become independent and self-sufficient when it comes to health care and retirement, and to help accomplish this, he says, “financial illiteracy” must be wiped out, with the help of advisors everywhere. And the long term picture? “I feel good.”

Calm Amid the Storm

Not one advisor this magazine spoke with reported an instance of client panic; in fact, nearly all clients were reported as “calm,” at least in regard to their finances. But if clients or employees do become upset, for whatever reason, and are looking to you for guidance, here’s what some experts are saying (see “Coping With Tragedy” by Olivia Mellan on page 22. See also at end of this article on the Web). Jeffrey Bradley, a therapist and grief counselor in the Boston area, points out that while it is very unsettling to have to live with uncertainty, “have patience.” What do people need to do to keep it together? “Don’t overwhelm yourself,” he offers. “Don’t overwork. Keep your routine going. Keep busy. Reach out.” He stresses the importance of having other things in your life to focus on.

Ed Jacobson, a Chicago area clinical psychologist who does coaching and organizational consulting with advisors and clients, offers these insights: “Planners need to be very much in touch with their own emotional responses to emergencies and catastrophes.” He adds that we all tend to forget what we really stand for, and what’s really important in our lives. “What really matters to you?” he asks. Jacobson suggests a “values identification exercise” to put yourself in touch with the things that matter most. “[It's] very important, when we feel the ground almost literally shake beneath our feet, to realize that we do have core values, and people who are dear and important to us, and there are larger issues that do matter.” If you can do that, recognize the feelings you have about such events, and let the feelings exist; they will diminish and not control your actions and reactions.

Apart from serious emotional situations, Rob Densen, director of corporate affairs at OppenheimerFunds Inc., says that “people do stupid things in times of crisis, and advisors have a unique role to play in preventing this from happening.” Don’t react to rumors, advisors have cautioned clients. Don’t make short-term decisions on long-term plans. Stand pat. Ride it out. In a letter to their clients, Tim Kochis and Linda Fitz of Kochis Fitz in San Francisco made clear that they were not planning any strategy shifts or attempts to time the market. “We recognize that the temptation to move to a safer place is strong at moments like this, but also know that such near-term safety often comes at the price of significant risk to long-term portfolio performance.” F. Dennis De Stefano, of De Stefano Wealth Management in Maui, Hawaii, likewise told clients that they should not use market volatility to change their investment strategies. “Rather, investors should use market volatility to execute their investment strategy,” he says.

Fern Alex La Rocca of Advanced Financial Designs, San Mateo, California, contacted her clients to appeal to their patriotism, urging them to remain in their investments as they planned to do before the tragedy. “To act irrationally and liquidate everything will only cause these terrorists to succeed even more,” she stresses.

What Next?

The immediate U.S. economic outlook is undoubtedly grim, with some pundits predicting a 90% probability of a recession. Jeremy Siegel, a professor at the Wharton School of Finance and a leading bull market theoretician, cautioned shortly after the disaster that if the Fed didn’t lower interest rates 50 basis points immediately, the stock market was apt to drop 10% upon reopening and continue to fall after that. (The Fed did make a 50-basis- point cut in the overnight funds rate before the market reopened on September 17, but the Dow closed down 684 points that day, or 7.1%). While Siegel envisions a downside risk of 20% or more, he believes a declining market will open up long-term opportunities. Apart from the government’s vow to “hunt down and punish” the responsible terrorists, Congress on September 12 okayed a $20 billion appropriation bill to cover obvious immediate and ongoing disaster needs and to serve as a financial stimulus; by the end of the next day the figure had been doubled–adios, budget surplus. By September 13 the Federal Reserve Board had injected $38.25 billion into the financial system by purchasing bonds from investment houses.

Howard Balliett of Balliett Financial Services & Trust Company in Winter Park, Florida, says that those who still have significant money in stocks are “in for a rough ride, but the downtrend won’t necessarily endure.” Complete recovery, he says, could take three to five years. Since World War II, history has repeatedly shown that selling in crisis is the wrong thing to do–witness subsequent market comebacks following events like the Cuban missile crisis and the Kennedy assassination.

That said, Glenn Carlson, managing partner of Brandes Investment Partners in San Diego, cautions that the terror attack may have longer-term repercussions for equities.

Robert Stovall, senior vice president and market strategist at Prudential Securities, is a World War II Army veteran who, like many Americans, compares the terrorist attack to the bombing of Pearl Harbor. He predicts a speedier stock market recovery, saying that “if there is one thing that happens when you have wars or near-wars, you revive the interest in federal spending to improve things.” He adds what we all know but are often loath to admit: “Nothing brings a country out of a slowdown quicker than a national disaster.”

The consensus from the mutual fund industry seems to be to sit back and wait. While uncertainty looms, fund managers admit that our shaky economy is now bound for recession. The short term will be full of volatility, but long-term investing will balance itself out. “Long term I see no change in the economy,” says Ron Muhlenkamp, manager of the Muhlenkamp Fund. “We’ve had more calls (from shareholders) seeking information than we have had about cashing in.” As for how the large investment firms will fare, Muhlenkamp says, “The people are the assets. The psychology of the investment community might rest on the well being of the people. If the workers are alive, the companies are still in business.”

Metropolitan West Total Return Bond Fund manager Tad Rivelle fears the events that took place will push the economy into a recession. “Prior to September 11, the U.S. economy was in a slowdown. The Fed was taking measures and stimulating the economy,” Rivelle points out. “Energy prices had moderated substantially over the summer. In our view the framework was being laid for an economic comeback in early 2002. The economic shock we have experienced has the ability to push us over the edge and into a recession.” Investors need to sit back and wait, Rivelle counsels, and stay the course.

Ray McCaffrey, manager of PBHG Large Cap Value Fund, sees a natural reaction already taking place. “You’ll probably have a consumer that gets nervous. You’ll see less air travel, less consumer spending. This will slow commerce down. It could be enough to slow us into recession.”

Bowed but Not Broken

Early reports from financial media like the Wall Street Journal, which wrote on September 12 that “substantial damage was done to the psyche of a world financial system already on the edge from prospects of an international recession,” have been criticized by many advisors as overblown rhetoric. By contrast, as this magazine went to press the mood in the planning community appears cautiously optimistic, more in keeping with Treasury Secretary Paul O’Neill’s pronouncement that “in the face of today’s tragedy, the financial system functioned extraordinarily well.”

How well? The system’s infrastructure has proven surprisingly solid–and resilient. “My sense is that all of the data, client records, and equipment needed for trading are functioning,” says Michael Kresh of Hauppauge, New York-based Kresh Financial Advisors. Even companies that were at ground zero of the vicious attack reported two days later that they would be open for business as soon as the capital markets resumed operation.

While those who buoy the market’s equity side are diverse and powerful, the large players in the bond market tend to be more concentrated. Reportedly, 75% of the long bond’s market was in the hands of now-decimated Wall Street mainstay Cantor Fitzgerald, which leased office space at the top of the North tower of the Trade Center and suffered horrendous loss of life. Its subsidiary, eSpeed, along with rival bond firm

Garban Securities, suffered massive losses of personnel and physical assets as well. Still, manager Scott Simon, in the middle of the bond marketplace at PIMCO, expects a return to normalcy in the bond market in a relatively short period of time.

In addition to the physical infrastructure of buildings and technology needed to run the capital markets, client portfolio data emerged intact. The New York Times reported shortly after the incident that Morgan Stanley had backed up its client data in three separate places. Duncan King, a spokesman for Salomon Smith Barney, told Investment Advisor that Salomon has a redundancy system located in northern New Jersey that mirrors every fact and figure that is inputted into the firm’s main New York City office. “I’ve been receiving e-mails from all the mutual fund companies that I use telling me that client portfolio information has been preserved,” says planner Michael Kresh. “Everyone knows who owns what.” The high degree of data preservation can in part be traced to the contingency plans companies made for Y2K. Advisors say the incident should nvertheless be a vivid reminder to back up data in their own offices.

As for technology itself, Matt Abar, CEO of TechFi, the Denver-based software outfit that sells the Web-based service bureau called AdvisorMart, suggests that the events on September 11 may slow down the adoption of new technology by advisors in the short term, but move advisors more quickly to online applications in the long term.

Insurers, of course, have been hit hard by recent events. According to data released September 14 by Grubb & Ellis, a global real estate services firm, about 20% of lower Manhattan commercial office space was destroyed or damaged in the attacks, representing more than 27.5 million square feet. And the precise number of those killed and injured in New York–around 5,000–remains unknown. The life insurance industry was quick to reassure victims’ families that the industry is sound and that claims will be paid. Herb Perone of the American Council of Life Insurers said on the day after the attack that the industry was prepared to cope with a large number of claims. “The risk is spread over a large number of companies. People should be confident that claims will be paid.” What about the health of the industry after those claims are paid, and should the public worry about future life insurance company stability? Perone points out that while the toll is unimaginable in its tragedy and loss, it is, financially, not the catastrophe that it is in human terms. “This will have a significant effect on the industry in terms of payout, but this is our business. The industry will not have a problem paying the claims,” he repeats.

With the stock market reopened with a moving ceremony at the New York Stock Exchange six days after the attack and fueled by a Fed cut in interest rates and the likelihood of a government bailout of the airline industry, we continue to pull ourselves together and get on with the business at hand. As Guy Cumbie puts it, “Any time we’re in chronological proximity to the appearance of uncertainty, there’s going to be more instability. As we get separated from it in time, the stability tends to return. People will feel more secure, and that is what we need.” In the end, we will likely be left with a deeper appreciation of all that we had and were before the tragedy. It is a sentiment well expressed by an advisor participating in FPA’s teleconference following the attack. He simply said: “What a great job we have; what a great country we live in.”


(See complete coverage of 9/11: Ten Years After on AdvisorOne.)

Coping With Tragedy

Since the earth-shattering events of the terrorist attacks, many people have been plunged into shock and experienced overwhelming feelings of fear, rage, anxiety, and despair. How can you help your clients get back to some emotional balance and facilitate healing in the midst of unspeakable loss?

First, reach out to clients and their families and express your concern. Listen and empathize without jumping in too quickly to try to solve their dilemmas. But when they are ready for caring advice, remember that there are several ways people can be helped to heal:

1) Remind each individual that they have something in their lives that helps them reconnect to hope and healing and urge them to do it. For a friend of mine, it’s stopping work and sitting outside on the water where she lives watching the boats go by. For others, it’s singing or exercising. Whatever it is, urge clients to take time for this personal form of healing.

2) Take meaningful action against the scourge of events. My 20-year-old son rushed out to give blood, and I’m planning to do the same. If your clients have other ways to give, encourage them to do just that. They can call the American Red Cross at 888-256-6388, or contact them at

3) Encourage clients to reach out to family, friends, and even strangers, to give and to receive comfort and solidarity.

4) Help clients who are spiritually or religiously oriented to seek comfort and connection in these ways.

Finally, only offer practical financial help (like revisiting clients’ goals) when the client’s emotional state is balanced enough to know what he or she really wants.

If you have lost a friend or loved one in this terrible catastrophe, take time to honor your own mourning process and think about having a ritual of remembrance or attending one where you can include your friend or loved one among those being remembered. Don’t try to rush back to work before you feel you are able to concentrate on any mental tasks. Do whatever heals you–walks in the woods, classical music, fishing, whatever. If you take some time to heal, you will be able to return to your work with clients with positive energy to help them heal as well.–Olivia Mellan

Therapist and IA columnist Olivia Mellan can be reached at [email protected].


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