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How to calm a panicked client? Look at stable assets

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Whew. The last two weeks of August 2015 were a true roller coaster for investors in the stock market, with six straight days of huge losses, followed immediately by two days of record gains. The Dow Jones Industrial Average fell 6.6 percent in August, its largest monthly decline since May 2010, and the benchmark S&P 500 and Nasdaq Composite both recorded their largest monthly declines since May 2012.

But while financial advisors understand the fluctuations of markets and are trained for how to react to volatility, your clients are not. For many of your clients, turmoil in the stock market is a no thrill ride. The group of investors least thrilled by the recent turmoil, however, was seniors who have retired and are now living on fixed incomes from Social Security, a pension or other investments.

As we transition from a lifetime of employment and building our savings into the twilight years when we begin spending our capital for retirement needs, a profound emotional change occurs. A retiree’s spending “wants” becomes his spending “needs” and a senior’s tendency to shrug off market gyrations as inevitable cycles pivots to a more serious level of real concern about the value of their investments. These psychological shifts for seniors create stress, uncertainty and, in many cases, even fear.

Here is the problem: when stock markets undergo inevitable corrections or even extended downturns, many individuals panic and call you with orders to sell their investments at prices that may be at deep discounts to reasonable valuations. These panic sell moves are especially harmful to seniors as they lock-in losses on those assets.

As all financial advisors know, the key is to persuade your clients to remain calm during these periods of market turmoil and avoid the self-inflicted wounds that come from poorly timed investment decisions.

However, if we examine the makeup of your clients’ investments, nearly every asset class has potential for some market volatility — except one. Their life insurance policies.

If your client is over the age of 70 and has a life insurance policy he/she no longer needs, want or can afford, that life insurance policy may be a safety net during volatile times. It may be the extra resource that gives them the peace of mind in knowing that it can be tapped when and if it’s ever needed. It may also eliminate the strains of an added expense of annual premiums at a time when reducing unnecessary cash outflows are essential.

For example, if the motivating factor for your client is to obtain cash in their family’s hands — for retirement needs, health care expenses or simply to invest into other assets — then a life settlement may well be a superior alternative to liquidating other assets in the portfolio.

When they enter into a life settlement, life insurance policy owners realize an average of seven times the amount of the policy’s cash surrender value, based on an analysis of a 2010 survey of the Life Settlement market by the U.S. Government Accountability Office.

Few seniors are aware their life insurance policy may be a source of stable retirement funds, so you have a unique opportunity as a trusted advisor to educate them about the value of these overlooked assets.

And be prepared for them to be receptive to the idea: according to a survey prepared for the Insurance Studies Institute, 90 percent of seniors who have lapsed a policy would have considered selling it if they had known a life settlement was an option. For seniors who are panicked about the security of their “nest eggs” when the stock market is erratic and the rest of the world is seemingly out of control, a life settlement can be an important option to consider.

See also:

8 uses for life insurance that most consumers are clueless about

Before your client lapses that life insurance policy, consider the alternatives


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