“I need to stop the bleeding.” “I cant take it anymore.” “I think we need to look at how my assets are performing.”
These are some of the comments Bruce Ensrud has been hearing from clients lately. The feelings range from fear to reasoned concern, he says, but most come with a request to find a safer place for the clients money.
A senior financial consultant with Thrivent Financial in Golden Valley, Minn., Ensrud concludes the overall financial mood right now seems to be “discomfort.”
Financial advisors from around the country are reporting similar trends. The talk of the town, they say, is safe money options, reducing volatility, and the value of guarantees.
Executives at many variable companies tell National Underwriter they see the same trends.
As a result, advisors are directing more of their energies toward educating clients on the ins and outs of conservative investing.
And many variable insurers are introducing more conservative options in their policies–several fixed accounts (some with market value adjustments), more bond funds, more conservatively structured equity subaccounts, etc. Theyre putting out educational materials on conservative strategies, too.
How all this is playing out is the subject here. But first, it should be noted that overall market trends demonstrate this is no small change. Going conservative is becoming big business. Consider:
The asset mix between bond/fixed accounts and equity accounts has changed the past two and a half years, says Rick Carey, editor of The VARDS Report, Roswell, Ga. As seen in the charts, by year-end 2002, the bond and fixed accounts had taken a much larger share of the variable annuity pie as compared to June 30, 2000.
Some of the equity assets did lose value during this period, Carey allows, “so not all the growth in the conservative options is due to asset reallocations.” Still, he says, the percentage increase in conservative allocations is unmistakable.
Executives at various insurers confirm Careys observation. They, too, have seen fixed and bond accounts at their own companies rise in recent times.
In 2002, fixed annuity providers tracked by LIMRA International, Windsor, Conn., saw premium volume rise by 40%, to $103.8 billion. This is the third consecutive record sales year for the product line, says LIMRA.
In February 2003 alone, government and corporate bond funds tracked by Financial Research Corp., Boston, recorded a total net inflow of $14.3 billion. This was up from just $7 billion in February 2002.
The question is, what are advisors saying to clients who see these trends and wonder if they should follow suit?
Most of Elaine Todds clients have not been comfortable with the equities market for three years. Therefore, she says she no longer waits for clients to broach the topic. “I bring it up myself, before they do.”
The principal of Todd Financial Services, Lafayette, Ind., Todd says she does this because she is concerned for her clients long-term welfare. “People are living longer today, so I typically run plans out to age 95 or even longer,” she explains. “We want to be sure their money will last the whole time.”
How does she bring up the topic of taking a potentially more conservative path toward that goal? In her twice-a-year reviews with clients, she frequently says: “Lets sit and talk about the market. Where is your risk tolerance? Based on what we find, we might want to consider reallocating some assets into the fixed account or some other place.”
She often also asks: “How much of your money do you want to protect?”
Most people respond to that last question by saying, “I want to protect all of it,” Todd says. When that happens, Todd begins reviewing with clients the objectives of the various subaccounts. She also discusses risk tolerance, goals, available options, where the clients other money is invested, the clients age, and whether the money will be needed for income in the near future or later on.
Depending on the outcome of those discussions, “we might split the conservative portion two or three ways,” she says.
If someone is “extremely nervous,” Todd says she suggests putting assets in the money market account for a while. The person can always move it later on, she explains.
When clients speak with Terry Nelson, a personal financial representative with Allstate Financial Services in Rochester, Minn., some are very cautious now, he says. “Theyll say things like, maybe I ought to stop investing and put my money in bank CDs,” he says.
In his view, “the recession, Enron-itis, and now the Gulf War have brought folks back to (the recognition that they need to do some) planning.”