The Way Ahead

(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 (www.fpanet.org) 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.