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Financial Planning > Behavioral Finance

Gloom or boom?

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Ok, let’s not sugarcoat it — the economy stinks.

The stock market has been a runaway rollercoaster with more yips than hoorays. Employment is down. Consumer confidence is at historical lows. The mortgage business is in shambles. Businesses are failing and the Fed is attempting to inject cash into a crumbling financial system to stimulate a recovery.

As a result of all this, people are scared. They’re fearful of losing their life savings. They’re uncertain about the future, wondering how they can recover what’s already been lost; they want to know if their initial retirement plan still works.

In short, they want answers.

According to industry experts, therein lies the opportunity. People have questions about their savings and financial security and advisors have the answers. In an online poll at, this publication asked a simple question to advisors: In light of the financial crisis, are you talking to your clients more, less or about the same? Nearly 60 percent of respondents said they are talking more to their clients. It is clear in speaking with industry professionals that now, more than ever, the line of communication between advisor and client is wide open. Successful advisors will play a key role in keeping clients’ fears in check during these turbulent times as clients increasingly look to them to be that calm, confident voice amid the storm, guiding them to a safe financial landing.

Be Proactive
Julie Pick, owner of JP Financial in Sioux Falls, S.D., says that being proactive with clients is a key to alleviating their fears. Since the financial crisis began, Pick has sent out three letters to all her clients. “I sent out the letters letting them know I’m here for them.”

The first letter was educational in nature. “It was a history of bear markets,” she says.

The second letter took a more specific look at this particular economic downturn and how it came to pass, explaining, “Investing is a long-term process. Don’t panic. Don’t let your emotions take over.”

In the third letter, Pick suggested to her clients that “maybe now is a good time to do a review of your plan.”

That last letter alone elicited three calls from clients in the first week. “In all three cases we were able to change their policies from a variable universal to a guaranteed UL. I explained to all three clients that even though I sold them the variable policies in the first place, times have changed, and that this is the best option for now.”

Pick says it’s essential to tell clients the truth, even when it’s something they don’t want to hear. “I’ll say: ‘When you put that money in three, five or eight years ago, you didn’t expect it to go up every year did you?’ You have to throw it back on them and ask them, ‘did you expect it to go up every year? Well, this is one of those years where it didn’t.’”

The plan
Troy Hirschi, VP of product development, wealth management at SunGard says that he’s found some advisors are faring better than others. Why? “The ones that are more clientfocused are the ones in better shape than guys who are product-focused. The advisors who are client-focused have a foundation that is built on really knowing the client, planning for the client’s goals and putting together plans to accomplish these goals,” Hirschi says.

He adds that successful advisors are bringing clients in and reviewing the plan and making modifications where needed. “Whatever the goal is, you need to get the client in, have them sit down and go over the plan. If it’s down 30 percent right now, you can’t downplay it. You have to be able to explain to them about market cycles and keep them calm.”

With modeling software, Hirschi says advisors can take clients through the various scenarios depending on their plan. “If they’re particularly uneasy about where they are today, we’ll run the numbers and show them some realistic alternatives, what ifs, and assumptions on where they are now and where they might need to be.”

Taking them step-by-step through the plan, with various scenarios, is a good way to alleviate the uncertainty, he adds.

What about sales?

With the dialogue between advisor and client being ramped up, the million-dollar question then becomes one of activity–are sales up? Jack Marrion, president of St. Louis, Mo.-based Advantage Compendium Ltd., says the data is more anecdotal than scientific at this point. “In talking about the (financial) crisis, firm sales numbers won’t be out until the end of January. From talking with a few carriers they say sales are up modestly to strongly for the month.”

Jesse Slome, executive director of the American Association of Long-Term Care Insurance, agrees that getting recent data is difficult. The Westlake Village, Calif.-based Slome admits that long term care is in a different boat, somewhat, than many insurance- and risk-related products.

“Consumers are not generally sitting there with discretionary cash to pay for something big like LTCI,” Slome says.

In talking with LTCI agents, Slome says many are experiencing a 5-10 percent drop-off in sales right now compared to a year ago. “Compared to stocks and other investments, that’s not too bad, considering the market.”

Bruce Dickes, vice president and chief marketing officer with Omaha, Neb.-based Financial Brokerage, Inc., says it’s been the best year since 2002 for annuity sales. According to his internal polling, Dickes sees “fixed and indexed products doing quite well.” With all the uncertainty, it’s a great time to be in a “safe money place. There’s no down side. You’re guaranteed never to lose dollars, and you share in the upside. For the person in indexed versus variable, we’re seeing indexed doing better now. It’s a compelling story to share with your clients. You can tell them: ‘If you had invested in that [indexed] product for the past year, you wouldn’t have lost a nickel.’”


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