What To Do When Clients Say Yank It

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In a down market, it can be a registered reps worst nightmare.

The “it” is the moment a client phones in, or drops by, and announces angrily: “I dont care about your asset allocating or your automatic rebalancing or your long term planning. I dont care about anything youve been telling me about goals, time horizon, and needs. I want out of the market! Yank my equity investments now!”

Is it happening? You bet. Many reps, insurance company executives, and mutual fund officials have been telling National Underwriter such calls are not infrequent these days. With stock market indexes see-sawing in triple digits on a daily basis, they say, customers–even long-term investors–are dialing in with the idea of bailing out. A number of people known to this writer–sober citizens all–say they, too, have been looking at the exit sign.

What is a rep to do? First, remember that a lot of the callers are really talking from “emotion, distrust and anger,” says Jennifer Renner, a registered rep who works in the Personal Delivery area of American Century Investments, Kansas City, Mo.

In response, she says she acknowledges the feelings and also points out that “we are also angry, frustrated and scared.”

Sometimes that alone is enough to calm the person, she says. “The person has vented, gotten the feelings out, and been heard.”

Many people in a down market tend to feel “incredibly alone,” points out Stephen Gresham, executive vice president and chief sales and marketing officer at Phoenix Investment Partners Ltd., a subsidiary of The Phoenix Companies, Hartford, Conn.

“When the market is up, its a party and everyone wants to join. But when its down as it is today, the party is over and people feel fear, despair, and worn down.”

This is the very time when people should be talking to their financial advisors, he says. Unfortunately, many high net worth people polled in the 2002 Phoenix Wealth Management Survey indicated their financial advisors arent communicating with them enough, he says.

The advisors dont have to take responsibility for what has happened in the market or a persons portfolio, Gresham says, noting that “our survey shows most clients are not transferring blame for the downturn to their advisors.” But the advisor “does need to take responsibility for working on a recovery plan with the client,” he says.

To do that, he suggests advisors “start by sharing emotional space with their clients. They should orient themselves appropriately to where the person is coming from right now.

“Remember this is a person who has suffered a loss.”

If the person is receptive to the emotional sharing, that is the time to try redirecting to a more rational discussion, suggests Renner. “For instance, ask the client to tell more about their current situation. Say, What has changed? Do you need the money now?”

The answers might suggest a change in asset allocation is in order, she says. “If so, try suggesting that the client consider doing that first.”

If the client rejects that idea or says he or she still wants out of the market, try discussing alternatives, Renner continues.

“Perhaps ask, Do you ever plan to go back into stocks? If the answer is yes, suggest the client leave some of his or her money where its currently invested. Suggest taking out only some of the money–so the client will be in the market when it goes back up again.”

If the client does not like that idea either, “try asking how he or she plans to keep up with the pace of inflation, and how the person will know when its time to get back in the market,” Renner continues.

The point, she says, is to stay focused on rational solutions, ones related to the clients current goals, needs and risk tolerance. “Take the emotion out of looking at returns–the wow of the great returns and the panic at the falling returns.”

Thats tricky to do without discounting client feelings, but she says it can be done.

It helps to emphasize that “Im not here to stop you from doing this,” she adds. “But raise the possibility that maybe the client might instead want to consider scaling back,” if it’s in the clients best interests.

For instance, if the client is age 35 and planning to retire at age 55, “the discussion would be much different than if the person were age 54 and planning to retire at 55.”

The former might need to stay in the market in some fashion while the latter might need to consider other options. “As always, its the individual circumstances that are important,” she says.

A helpful strategy would be to “recognize that we are where we are,” says Gresham. He suggests advisors compare the clients situation to someone who has been robbed or burgled. “Then ask yourself, how would you talk to a robbery or burglary victim about their loss?”

One idea might be first to acknowledge that what the person had may not come back, he says. In terms of finances, he says, acknowledge that the stock market is down and may not come back up any time soon. “Then say to the client, what should we do first?”

“People today want to know you are there, looking at their accounts, and not running and hiding,” contends Daniel Petersen, vice president and chief marketing officer of Clarica Life Insurance Company-U.S., Fargo, N.D.

Anecdotes are circulating about investors not being able to reach their brokers right now, he observes. Probably, the brokers “just dont know what to say to clients any more” so they just duck, Petersen surmises.

Thats unfortunate, he continues, because he has noticed that reps who proactively contact clients and respond to their concerns are getting new business. Some of their clients may have pulled money out of mutual funds, he allows, but they also turned around and bought something else from the rep.

To illustrate, he notes that his own companys “equity index annuity sales are up over 200% for the first seven months of this year, as compared to the same period last year, and our traditional fixed annuity sales are up dramatically, too.” Thats significant, he says, given that the large majority of Clarica producers are registered reps who can sell mutual funds too. (Note: Clarica does not sell mutual funds or variable policies.) These producers–and their customers–like the EIAs floor guarantees and upside potential, he says.

Reps in the banking channel also have clients who want to yank their equities, says Charles Petrizzo, national sales manager-annuities for Wachovia Insurance, Charlotte, N.C.

“Our suggestion is for reps to review the clients goals, time horizon and risk tolerance to see if anything has changed.”

Reps can use this opportunity, he says, to: re-educate the client, point out reasonable expectations for returns, suggest reallocation to more conservative subaccounts (in a variable annuity, say), and discourage rash decisions based on short-term market movements.

If a customer insists on getting out of the market anyhow, Petrizzo suggests several conservative strategies.

For instance, he says, try using “interest averaging” inside a VA. (This entails moving money from the VA subaccounts into the VAs money market or fixed account, which will then spill its interest earnings back into the variable subaccounts.) This way, he says, clients can exit the market now but also arrange to make a gradual re-entry over time.

Alternatively, he says, reps can recommend moving a VAs subaccount money into the VAs fixed dollar cost averaging account and then DCA-ing the money back into the VA subaccounts; or they can set up a type of split annuity plan inside a VA.

Wont buyers turn up their noses at doing anything with VAs right now? Not according to Petrizzo. He says Wachovias VA sales are up 40% for the first seven months compared to the same period last year. “A lot of it is new money,” he adds, “and much of it is coming from traditional mutual fund producers.”

Many brokers see these strategies “as viable solutions for this market,” Petrizzo contends. Customers are responding, he suspects, because their principal is guaranteed, and yet theyre still in the market.

Immediate VAs are becoming a solution, too, he says. When reps present modern IVAs, with their liquidity and floor guarantees, as part of the “comfortable retirement” discussion, the yank-my-equities clients are “interested,” he says. In fact, at Wachovia, IVA sales are already at $16 million this year, more than double the 2nd half of last year.

“There is no one solution that works for everyone,” stresses William Lowe, senior vice president-wholesale distribution at ING (U.S. operations), Des Moines, Iowa.

“And you cant convince someone to stay in equities who doesnt want to,” he says. “Besides, doing that may not even be appropriate.”

But there are solutions the rep can offer, Lowe says, if the client wants to stay in equities but just doesnt want any more losses. These solutions are coming in the form of various new guarantees inside insurance products, and also new strategies for using insurance products. (See box on page 4.)

He says ING has been offering these strategies for a while, and now “our sales are way ahead of plan.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 12, 2002. Copyright 2002 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.