If there’s a silver lining for advisors in the financial havoc wrought by the recession, it’s this: High net worth individuals have reduced expectations for their portfolios; and the life insurance and financial service professionals who deliver steady results and make themselves accessible can expect to win their business.

“Whereas in prior years, the emphasis was on innovation and creativity, today there is a return to valuing service and stability,” says Kenneth Nordstrom, a vice president of advanced markets at Sun Life Financial, Wellesley Hills, Mass. “There is definitely an opportunity for advisors to pick up new clients, particularly those who, oddly, were abandoned by professionals who feared communicating with them about all their financial troubles.”

One result of the economic downturn, observers say, has been a marked shift by high net worth clients from high-risk to more conservative portfolios. There is, too, a heightened focus among the affluent in the financial stability of insurers and financial institutions where they invest their money.

“Much more than in the past, we have to assure clients that the [institutions] where their money is housed are viable,” says Bob Hartnett, a managing director of Lenox Advisors, New York, N.Y. “Previously, the financial soundness of these institutions was taken for granted. Nowadays, this issue is as significant as any other we cover in the planning process.”

A key challenge for advisors, adds Hartnett, has been how best to manage client expectations, particularly with regard to assets under management. Since the onset of the recession, many portfolios have dropped 40% or more in value. Among assets taking a hit: stocks, mutual funds, real estate investment trusts, exchanged-traded funds and variable life policies.

Effective client management, experts say, is partly about being proactive: alerting clients before the next scheduled quarterly or annual meeting to developments–a dramatic dip in stock values, changes in interest rates or revamping of tax laws and government regulations–that could derail the client’s financial objectives.

Because of cash flow issues, many among the affluent also are funding their life policies less aggressively. Whereas in prior years they might have maximized premium payments into permanent policies to build up large cash values, many today are opting for minimal funding to cover basic death protection or estate planning needs. Or they are supplementing smaller permanent policies with term contracts that can be converted to cash value policies in future years when the economy improves.

Given the aversion to equities in the current environment, such conversions are unlikely to yield a bumper crop of variable life policies, which have suffered declines in value–and sales–in the wake of last year’s credit crisis. Damon Bates, vice president of life insurance marketing MassMutual, Springfield, Mass., has also observed a flight from universal life to traditional whole life policies.

“There is a newfound appreciation for whole life contracts among consumers because of the product’s guarantees and flexibility,” says Bates. “Depending on how long the contract is held, clients can choose any of a series of options, including reducing the premium, using dividends to pay the premium or purchasing paid-up additions to the death benefit. And the cash value can be accessed for emergencies.”

Adds Steve Bennett, a chartered financial consultant and president of Wealthcare Strategies LLC, Altamonte, Fla.: “We’re putting a lot of emphasis on whole life in our practice. For many upscale clients whose portfolios have suffered substantially in this recession, whole life is about the only asset that’s holding up in value.”

The sagging fortunes of UL and VUL sales relative to that of whole life are reflected in industry statistics. According to a report by Windsor, Conn.-based LIMRA International, whole life sales for the second quarter and first six months of 2009–the worst half-year on record for all life sales since 1942–fell by just 3% and 4%. By contrast, VUL sales dipped a dramatic 50% in the second quarter and 55% for the first half of the year. Universal life sales fell 29% and 27%, respectively over the same periods.

To be sure, not everyone is convinced that whole life is the way to go. Samuel Braun, a chartered life underwriter and director of investments at Financial Strategy Network, Chicago, Illinois, says that while the death benefit guarantees are attractive, the inflexible premiums generally don’t appeal to his small business clients, particularly those in volatile industries that are facing cash flow issues.

“We typically wouldn’t look to save retirement assets inside a whole life policy for our business clients,” says Braun. “Whole life premium checks take their toll on cash flow. Instead, we look to no-lapse UL policies to fund executive compensation, key person and business succession plans.”

Other advisors suggest that affluent clients would do well to buy a range of policies. Just as individuals should allocate equity investments across asset classes to mitigate market risk, the argument goes, so also should they diversify their insurance portfolios among different types of products.

“I preach portfolio of life products the same way I preach portfolio of investments,” says Herb Daroff, a certified financial planner and partner at Baystate Financial Planning, LLC, Boston. “My clients have a combination of term, UL, whole life and VUL policies, which do different things inside the portfolio. They also have both short and long-term disability income insurance policies.”

While diversifying their insurance and investment portfolios to hedge against adverse market movements, adds Daroff, high net worth clients are also revisiting–and jettisoning–conventional tax avoidance strategies. Given the prospect of a rise in tax brackets to address a ballooning federal budget deficit and national debt, many clients deem it advisable to “accelerate” (recognize more) income in the current tax year and defer expenses into later years–the reverse of the traditional approach.

Assuming a rise in tax rates, says Daroff, it makes sense to take an income tax hit now. Otherwise, the client risks paying substantially higher income tax in future years, when the top tax bracket, he suggests, could easily top 50% or 60%.

The argument for maximizing income reporting in 2009, adds Daroff, may also dictate not doing a conventional IRA-to Roth IRA conversion in 2010. Under the tax cut bill signed by President Bush in 2006, the modified adjusted gross income (MAGI) limits on a Roth IRA will be lifted for conversions; and high wage earners can spread income tax on a conversion over both 2011 and 2012. Though seemingly attractive, the extension allowed for paying income tax may prove more burdensome if the client is also pushed into a higher tax bracket.

More promising tax avoidance strategies, says Daroff, lie in tapping estate planning and gifting techniques that leverage the unusual convergence of three economic “lows:” low tax rates, low interest rates and low asset values.

“This is the perfect economic storm of opportunity to shift enormous value out of the client’s taxable estate,” says Daroff. “Because asset prices are so depressed, we’ve been keeping appraisers busy around the clock moving personal and business assets off the client’s balance sheet.”

Assets with low valuations, such as marketable securities and real estate, may be ideal for lifetime gifts because the low valuations translate to reduced gift tax exposure. Additionally, key interest rates used in estate planning–the IRC Section 7520 rate, as well as the short, mid and long-term applicable federal rates or AFRs–remain at historically low levels.

The low asset prices and low interest rates, in turn, boost the attractiveness of two currently favored wealth transfer vehicles: the intentionally defective grantor trust (IDGT), which “freezes” the client’s estate by moving assets outside the trust creator’s estate; and the grantor-related annuity trust (GRAT), another estate-freezing strategy that lets grantors transfer the future appreciation of stock or other property to heirs at minimal gift tax cost.

“With a GRAT or sale to an IDGT, the client can give away a lot more in value than is otherwise allowed under the annual and lifetime gift tax exclusions,” says Daroff. “If, using today’s low interest rates and marketability discounts, I can reduce a $10 million real estate portfolio to $6 million for estate and gifting purposes, then I’ve done a pretty good job of estate planning.”

So it would seem. But given the roller-coaster of a ride that so many among the affluent have experienced during the year past, just getting them to agree to a chat about their finances–much less signing on to a nifty estate or gifting technique–could be a high hurdle. In such cases, securing a referral from another client or allied professional could be the key to winning the prospect’s trust.

“So many people have been dissatisfied with events of the past year,” says Bennett. “Unsure about what to do, they’re reluctant to seek advice outside of their small circle. So there really has to be a strong referral relationship coming from another individual to gain access to that prospect.”