How Advisors Can Protect Lawyers’ Retirement Funds From a Crash

What Advisors Say

So what do professional financial advice-givers advise about the market downturn?

Greg Friedman, CEO of the Marin County, California wealth management firm Private Ocean, says you “need to maintain a long-term perspective.” The problem with down markets is that “people only remember last week,” he says, recalling that before the current drop, “we had five years when the markets went straight up.”

While Friedman, a certified financial planner, acknowledges that “yes, there’s pain,” the current decline in the markets is “nowhere near” how the markets behaved in 2008 and 2009. He says “we’re telling clients what we always tell them: ‘Let’s see how it affects your plan.’” Since clients’ financial plans “don’t rely on three quarters of bad markets,” if their investing allocation remains “appropriate for their life stage, there’s no need to change it.”

For those survey participants who expressed concern about their shrinking retirement plans, he has a suggestion. “If you’re worried about your retirement funds and you’re still working, you should be throwing in your 2016 retirement contributions right now” while stock prices are low.

Joe Votava, CEO of Seneca Financial Advisors in Rochester, New York, chuckled knowingly when he heard that 29% of survey participants said they would simply work longer to make up any shortfall in their retirement plans. “That’s a typical lawyer’s reaction,” he said, to work more and thus make more money.

However, in writing plans for its law firm partner clients, he reminds them “you’re not going to be making millions a year forever.” Instead, he advocates building a long-term plan that “gives them a blueprint for when they can retire.” Such a plan should focus on saving now, limiting taxes and managing their cash flow, which is particularly important for lawyers’ sometimes intermittent compensation, Votava says.

Votava, a J.D. as well as a CFP and CPA, who founded and ran the investment advisory arm of Nixon Peabody in Boston, says Seneca has attorney clients from 10 major law firms along the East Coast. So is he getting calls from them about the markets’ volatility?

“They don’t have the time,” he says. “They can barely fit their families in” considering their work schedules. However, Seneca adjusted its clients’ portfolios last October and November, “de-risking” them by moving the bond portion of the portfolio away from funds with unconstrained mandates to “a more stable core” bond approach. On the equities side, Seneca remains overweight U.S. equities and underweight emerging markets, Europe and Japan. However, with the decline in stock prices and the easing moves by the European and Japanese central banks, Seneca is considering moving to a higher allocation in those areas.

Mike Patton, founder and CEO of Integrity Wealth Management in Baton Rouge, Louisiana, admits that “this is the most challenging time I’ve ever seen in the markets.” Very low interest rates make bonds and cash “not attractive. That leaves stocks, which are volatile.”  Patton, a CFP, says he has called all his clients twice this year so far, first to “see if they’re nervous” and second to “allay their fears” about the markets.

Being “a little tactical myself,” he reduced his clients’ stock exposure “across the board” by 10% on Jan. 8, partly by selling exchange-traded funds with high beta. That, he says, “turned out to be a good move” for his clients.

Patton also believes in the lessons of behavioral finance, as he wrote in a recent blog for ThinkAdvisor. “When the market is up,” clients are “very comfortable and willing to take on more risk,” he said. The opposite is true when the markets are down: clients’ risk tolerance declines. So instead of “selling high and buying low, you get the reverse: they go to cash.”

He cites investment guru Rob Arnott of Research Affiliates who wrote that “human nature is at the root of all poor investment decisions.”

About your plan: Karl Frank, a CFP with A&I Financial Services in Englewood, Colorado, says that “any financial plan that changes with market conditions is like Frankenstein’s monster, destroying everything in its path.” His advice? “As scary as it seems in times like this, stick to your long-term financial plans to come out safely in the end.”

Kristi Sullivan, a CFP and founder of fee-only Sullivan Financial Planning in Denver, has some pithy last words for those worried about the shrinking balances in their retirement plans. “My advice is always the same: Have a diversified portfolio that makes sense for your withdrawal plans. Don’t make changes based on short-term market volatility unless it is to rebalance to your target allocation.” The kicker? “Watch as little financial TV as possible.”

— This story was written by Katelyn Polantz of The National Law Journal. Contributing reporters from other ALM publications include: Brenda Sapino Jeffreys of the Texas Lawyer, Meredith Hobbs of the Daily Report, Monika Gonzalez Mesa of the Daily Business Review and James Green and Bernice Napach of ThinkAdvisor.

— Related on ThinkAdvisor:

• In a Stock Crash, How Much Are Your Clients Willing to Lose?
• Investors May Keep Assets on Sidelines for Much of 2016