How the Wall St. Earthquake Will Affect Clients

How are advisors reacting to the latest news of the changing landscape on Wall Street, with the bankruptcy of Lehman Brothers and the acquisition of Merrill Lynch by Bank of America? For one thing, they’re putting it into the context of the broader credit and housing crisis that has affected the markets and the economy for the past 18 months. For another, they’re taking a much longer view.

Harold Evensky, chairman of the wealth management firm Evensky & Katz in Coral Gables, Florida, admitted that the most recent turn of events was “unique in that we haven’t seen failures like this, but we’ve been through some other terrible experiences in the past,” particularly the 1973-74 market downturn and the savings and loan failures of the 1980s.

“To the extent there is a silver lining, the markets have been driven by uncertainty [as of late], so this is going to wash a lot of it out.” In the case of Lehman, the Fed and other large financial institutions had the resources to step in but they decided to pass, notes Evensky, which means they didn’t perceive its failure as something that would devastate the markets.

Lou Stanasolovich of Legend Financial Advisors in Pittsburgh thinks that in the short term, there will be more volatility, and the share prices of financial stocks will continue to suffer. “We are short on financial stocks already for our more aggressive portfolios,” says Stanasolovich, but he sees the effect continuing longer term, and not just in the U.S. “We’re seeing a lot of countries lowering interest rates, which means they are very concerned about a global recession,” he reports. “I think emerging market equities will have a lot of problems going forward, at least over the next three to four months.”