“Communicate, communicate, communicate,” is the main advice to advisors that Aspiriant CEO Tim Kochis suggests to help advisors through the ups and downs of the current troubled markets and economy. He cites a Spectrem report finding that about one-third of millionaire investors have not been contacted by their advisors within the last month and some not since the economic crisis began. “That’s unbelievable to me,” he says. Kochis believes constant contact with clients–through e-mail, in-person meetings, individual telephone conversations, and conference calls–has significantly helped his firm stay ahead of the game. The conference calls in particular were a vital part of the communication process for Aspiriant. “We set up a time in advance for clients to call in and we made a few remarks and then opened it up to questions from clients,” he recalls. Though Kochis and his colleagues initiated mass callings like this once a quarter in “more normal times,” it wasn’t until now that more than a handful of clients would call in. “During this environment, we wanted to reach a large number of people in a short period of time, so we set up these types of calls–once in October and once in December.” The calls attracted 150 and 90 clients, respectively.
Managing Money Like It’s the 1930s
As the market upheaval of last year put a sizeable dent in most investors’ portfolios as well as advisors’ assets under management, Lou Stanasolovich of Legend Financial says that since October 9 of last year, the nadir of the market slide, his firm’s lower volatility portfolios “did extremely well.” In fact, he says, “we did not have negative returns until late July, so we missed the first 20% of the downturn.” Legend’s more aggressive portfolios experienced “some downturn,” he adds, “but it was not as bad as the stock market.”
In late September and early October of 2008, Stanasolovich says Legend began to field more and more calls from jittery clients about the market’s volatility. It was then that his firm decided to “manage the money as if we’re in the early 1930s,” he says. This meant shorting certain securities, particularly equities, and buying the highest rated bonds possible, he says, which were Ginnie Maes (because the raw yields on Ginnie Maes at the end of 2008 were 6.5%).
The firm also decided to “sit in cash and we liquidated a lot of equity exposure; in August we had liquidated international real estate positions, we were down probably about 25% on average.”
Those international real estate funds, he says, “ended up losing 60% to 70%, so we did a lot of liquidations; We got hit but it wasn’t nearly as bad as it eventually came had we not sold.”
To cope with the market upheaval, “we took bold moves and became more tactical than we’d ever been before. We felt we had to. We reduced the volatility on our portfolios across the board both on the upside and on the downside to the point where we don’t have very wide swings.”
Reviewing Investment Options
At Savant capital Management, the response to the upheaval in the financial universe was to go back to the beginning and look at everything with a new eye.
“One of the things we did, and we’ve done it repeatedly in the throes of this tumult,” says managing director Tom Muldowney, “is we went back to the drawing board. We took a look at all our investment solutions–studied them from an academic standpoint and a cost standpoint–and made determinations as to what, if any, changes should be made.”
From an investment standpoint, Muldowney says the biggest move was into more government-guaranteed bonds rather than relying on corporate issues as they had in the past. “Even though the corporates were high grade,” notes Muldowney, “clients were pushing for safety–that was their primary concern.”
Rebuilding Confidence by Education
It’s no doubt a complicated task, but for Mindy Ying and the other advisors at Pillar Pacific Capital Management, a top priority is to restore their clients’ confidence in the financial markets. To accomplish part of that, Ying is looking for increased regulation, particularly for areas such as hedge funds and lending policies, where there has been a distinct lack of transparency.
“I also think that, as advisors, we need to understand investors’ psychology,” she adds. “My main job, especially in this difficult market, is to make sure my clients understand what happened and to prepare them for the worst case. This is not just a job you do right now. If you do it [only] when the market tanks like this, it’s too late.
“On the other side, during this horrible time, investors want to sell, because they want to flee to safety,” she says. “I ask my clients, ‘Do you think we can overcome this crisis? We’ve overcome many crises before, do you think we can’t overcome this one, say within five years?’ When you ask those questions, the client begins to understand that we’ve come through crises before and this is a set of money I don’t need to rely on for three to five years.”
Treat Employees Like Clients
Greg Friedman of the wealth management firm Friedman & Associates, and co-founder of the CRM firm Junxure, says that in the current atmosphere, “employees have the same fears as clients; fears about losing their jobs, about the health of the firm, and about the overall economy.” Therefore, it’s just as important to “communicate with employees, over and over again,” and not just “every couple of months; we give weekly updates” to employees, using charts and graphs to illustrate the state of the business. Friedman, who says he’s “almost completely stricken the word ‘I’” in talking about his firm to employees, reminds those employees “that we are each other’s clients, and we should provide the same consideration to each other.”