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Wealthy Clients Revisiting Need For A Formal Plan, Advisors Say

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Wealthy Clients Revisiting Need For A Formal Plan, Advisors Say


Many investors who reaped huge returns in the 90s were anxious to ride that trend as long as possible. So, they concentrated their wealth in a few well-performing sectors, held on to their equities too long and in todays volatile market are left watching those returns fall to a fraction of their former heights.

Those hesitant to take any action at all with the remains of their portfolio have been termed the “fiscally frozen” by The Phoenix Companies Inc., Hartford.

According to a recent Phoenix survey, 87% of advisors claim to currently offer a formal written plan that can be tailored to each clients needs.

However, overall, advisors havent consistently communicated the importance of formal planning with their clients, Phoenix says.

According to the survey, 35% of the high net worth without a formal written plan report not having one because they dont believe they need one; another 38% arent sure if they would benefit from a plan.

But, a wealthy person who does not have a plan will not stay wealthy long, warns Harold Evensky, chairman of the financial planning firm Evensky, Brown & Katz, Coral Gables, Fla.

The market has proven wrong investors who thought they knew what they needed, he says.

“We have saved clients money because they had a plan and stuck to it,” Evensky says. “If they have a fortune and can afford to lose it, they dont need a plan; if not, they need a plan. They need to understand it and implement it.”

James Cotto, managing director of investments, Cotto & Padovani Financial Strategies Group of Wachovia Securities, says he has never had difficulty communicating to his clients the value of a formal plan.

“We try to get everybody to do a plan,” he says. “I think everyone should do a formalized plan addressing current needs, future goals, prioritizing issues, risk tolerances, investment horizon.

“All those things are very important and having a formal plan takes away emotion from making financial decisions and it helps you to stay the course during volatile times, like right now,” he says.

Aaron Saperstein, senior vice president, Saperstein and Stack Investment Group of First Union Securities, Greenwich, Conn., says it is not at all hard to get a client to see the value of a formal plan, in part because clients perception of the market is contrary to their perception in the late 90s.

“People had this attitude that markets were magical and rising tides tend to lift all ships,” he says. “People looked at diversification and treated it like it was old-fashioned.”

Thats no longer the case, he adds.

Working without a formal plan can actually be doing the client a disservice, Cotto suggests. When clients ask him to work with only a portion of their money, he tells them he needs to know how theyre allocating the rest of their assets in order to serve them as best he can.

“I ask them all to do a plan just so we can clearly identify their issues. When things are really volatile, you need a plan,” he says.

A number of current clients have sought him out because they hadnt realized the level of risk theyd been taking “and they really want to know where they go from here,” he says. Their concerns now are whether they are allocated properly, whether they are in the right securities and “is there any increase on my horizon.”

Saperstein says hes noted a trend that reflects the regard in which companies now hold having a formal financial plan. He says many are contracting with financial services firms to offer their employees a financial plan package.

This trend grew out of the repercussions of having employees make complicated decisions regarding components of their benefits packages, including deferred compensation and Employee Share Ownership Plan, that perhaps have not weathered market fluctuations well, Saperstein says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 7, 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.