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How Advisors Can Protect Lawyers’ Retirement Funds From a Crash

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With the stock market down so far this year, is it a surprise that lawyers’ financial strategy is to keep working through 2016?

For many financial advisors who have lawyers as clients, it’s no surprise. But they warned that no one can work forever and offered some strategies to lessen the blow of a tough market on lawyers’ portfolios.

In a recent survey conducted for three days across the legal news websites of ALM, ThinkAdvisor’s parent company, 170 respondents out of more than 200 said they would work longer or stay the course to stave off investment pinches.

The approach dovetails with the culture at many law practices, where seniority means more power and business. Nearly every stock index has fallen this year since Jan. 1, with the exception of some Latin American markets, so law firm partners across the U.S. asserted that their plans to stay in the work force have not wavered.

“If I retired, I wouldn’t know what to do all day,” said David Bercuson, an entertainment lawyer based in Miami who has been practicing law for 45 years. He has his own firm.

“Some lawyers have an uncomplicated retirement plan. It’s a two-word description: Keep working,” said Frank Strickland, a partner in the Atlanta firm Strickland Brockington Lewis and the former chairman of the Legal Services Corp. Strickland, who is in his 70s, added that he relies on professional investment advisors’ help because, “I’m in the legal profession, not the investment profession.”

Indeed, many in Big Law may have less to worry about than high earners in other service professions.

Some law firms offer retirement planning guidance to their partners already, by investing through defined contribution plans in safer funds or setting up other funds that help partners save. Several major Am Law 100 firms still offer nonqualified pension plans which guarantee retired partners a set income out of firm profits until they die, according to Stanley Kolodziejczak, who leads the law firm services group at the accounting firm PricewaterhouseCoopers. Yet unfunded pensions plans are less widespread in the industry than they were several years ago, he added.

Concern and Perspective

Alan Weisberg, founding partner of Weisberg Kainen Mark in Miami and a tax attorney for more than 40 years, says he’s not losing sleep over the stock market situation. “It’s a bit disconcerting, but I’ve been through this before,” he said, adding that he still contributes to a 401(k). “Cross your fingers, hold your breath and hold on for the ride.”

He joked that he isn’t too worried because he’s recently gotten an email from Nigeria that he’s going to inherit $100 million.

International tax attorney Martin Press, a shareholder at the law firm Gunster in Fort Lauderdale, Florida, recommended that lawyers near retirement should calculate if they could live on 4% to 5% of their total assets each year.

“If he can’t do that, then maybe he should continue working,” Press said.

The recent stock market volatility is cause for concern for others.

With one daughter in college and another in law school, solo practitioner Eduardo Palmer in Florida said it was hard to keep contributing to retirement. He has cut his expenses to meet his pledges to pay for his daughters’ graduate schooling. He said he would start contributing to his retirement meaningfully again when they’re done in four years.

In a National Law Journal poll — an unscientific survey posted online — only five respondents out of more than 200 said they would rescind plans to pay for their children’s educations. “I’m a Cuban refugee and my father put me through law school. If my parents could do it with far less, so can I,” said Palmer, who said his goal is to continue working until he’s at least 67, in another dozen years. “It’s depressing when you look at your statement and see it’s gone down 30% in six months. You’ve just got to hang in there. I’m going to tough it out.”

Palmer said belt tightening starts by him not taking flowers home every week and could progress to cutting restaurant reservations and vacations.

“Growing up poor gives you perspective,” Palmer said.

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.

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