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The events of 2001–a turbulent stock market, the terrorist attacks of Sept. 11, the economy falling into an “official recession”–have taken their toll on investors, especially in how much risk they want to take.

This year’s shocks have also changed the way agents are dealing with clients who are coming to terms with market volatility and tepid returns.

“With the market going down, I’m talking to more people about needs,” says Michael Goss, president of Michael Goss and Associates, Overland Park, Kan. “I’m needs selling again, rather than chasing a return.”

Goss and others say investors’ attitudes toward risk have changed.

“People are taking their blinders off, the market just doesnt go straight up,” says Goss. “I think people lost reality in that.”

Thomas Mignone agrees. “I think that people have redefined their risk tolerance,” says Mignone, who is a detached MONY agent with Capital Management Group, New City, N.Y.

“Prior to this sustained downturn in the market, not many investors really viewed the term risk as a very real scenario,” he continues. “Risk was this hypothetical thing where the market could actually go down and stay down for a while.

“When you talked about risk in the past, it was more like ‘How much money do you want to make?’” he says.

“People were thinking higher risk means higher returns. Long term it does, but its a bumpy road along the way,” says Mignone.

He says people now are more conscious of diversification, asset allocation, and value investing. “People are a little more gun shy, they’re more prudent with their investing,” he says.

Keith Roddy recalls past comments made by investors: “I’m really not greedy, I don’t want too much, a nice balanced portfolio with a 20% return will just be fine.”

Roddy, who is vice president and national sales director for Guardian Investor Services, LLP., a subsidiary of Guardian Life Insurance Company, New York, states that investors are still very nervous about investing in the market.

“Investors are being careful, more methodical about their investing,” he says.

“Risk is very much on everyone’s mind,” continues Roddy. “They’re trying to put their arms around this concept of investing.”

For most firms, sales of mutual funds this year have been off. Roddy notes that sales for his distributors have been down about 20%, depending on the firm.

Mutual fund sales for Mignone had been off by about 40% this year, but surprisingly since the attacks of September 11, he has seen his business get back on track.

“I sense that most of the people weren’t afraid of stocks for the long run, they just didn’t want to get in and then watch it go down first,” says Mignone. “They’re trying to time the bottom the best they can.”

The general feeling is that after the events of September 11, things couldn’t get much worse, he says.

“I think people sensed that was the bottom, and once they started to see the market picking up I think the feeling is there’s so much more potential to the upside, as opposed to risk on the downside moving forward,” he says.

Going forward in this environment, Mignone feels “the best approach is the approach that should have been taken all along. Just take a look at someone’s entire financial picture and make sure you do a thorough assessment of a client’s risk tolerance and what it is they’re trying to accomplish long term.”

Roddy agrees. “Some of the positives that have come out of the market in general is that we see a pronounced renewed interest in goal-setting from investors. They’re really striving to understand their risk better and make appropriate investments according to their risk profile.”

Roddy is encouraging his representatives to contact clients with significant exposure and reevaluate exactly what their risk tolerance is, and make portfolio adjustments when necessary.

“I really think that it’s not more complicated than getting back to the basics of just providing sound financial advice,” he says.

Mignone encourages agents to better educate their clients. “Spend a little more time educating the client up front as to what the risks are of different investments,” he says. “Help them understand the long term nature of stock investing.

“I think that this has been a great education not only for the advisor community but for clients in terms of how the market behaves,” he says. “I don’t think most people have lost faith in the long term performance of the market.

“The only thing people have fear of right now is the short term uncertainty,” he says.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 17, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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