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How Advisors Can Help Retirement Clients Weather a Market Meltdown

By Jeff Berman

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Amid continued concerns over the coronavirus and stock market volatility, advisors should remain calm and communicate clearly to clients that, in the vast majority of cases, it remains prudent to stay the course with their retirement portfolios, according to retirement experts at Morgan Stanley and other firms interviewed by ThinkAdvisor.

“We communicate frequently with our clients and that is key,” says Joseph L. Soricelli, an advisor who is CEO of Aging Issues Management in New Rochelle, New York. “If we did our job,” extreme market volatility was discussed with clients when shaping their retirement plans, he noted, adding: “It’s our job to reduce stress, not add” it.

If clients have “appropriately invested to the risk tolerance” level that they and their advisors had discussed, they have likely managed fairly well this month, despite some losses in certain cases, he said.

What History Has Shown

Soricelli has “been through a number of these episodes” with the stock market, he said. “Are we tweaking portfolios? Have we made some changes? The answer is yes. Do we look at this as a potential buying opportunity” in some cases? “Of course. But we’re not jumping in with two feet,” he said.

Many clients have called him expressing concern, he says. To help ease their fears, he has sent out one-year reports showing that, in most cases, if not all, clients “still had some gains” overall between March 2019 and March 2020, despite what just happened.

“There are many individuals out there that are Chicken Littles,” he said. And Soricelli said he was recently speaking by phone with one such client in recent days — an older customer with a very low risk profile — who calmed down once he saw that he was still up for the year with his mainly bond-based portfolio.

For Scott Smith, director of advice relationships at the research firm Cerulli Associates, the “important thing here is what we found when we look back at what happened in 2008,” the last major financial crisis, is that “advisors who were very proactive in reaching out to their clients and talking to them were able to not only retain the clients they did have, but actually gain new clients,” he told ThinkAdvisor.

What advisors should stress to clients is that, despite the current crisis, “their long-term goals haven’t changed, and neither should their investment portfolios,” he said. It’s been a “relatively easy time to be a financial advisor” for the past 10 years, and “this is the time where advisors can really prove their value.” One way to do that? Make sure they and their clients “don’t do anything dumb,” he added.

Is It Going to Be OK?

The conversation between advisors and retirement plan participants, under normal circumstances, is usually a positive and “forward-looking” one in which customers typically ask how much they should be saving for retirement and where they should put their money, according to Christopher Dubie, a senior vice president and financial advisor at Morgan Stanley.

However, now, “folks are calling in, essentially asking ‘Is it going to be OK?’ and the conversation’s very emotional because we are talking about their retirement,” he said. Advisors, however, just need to remember that the overall discussion should remain focused on what the “time horizon” and risk profile are for the client, he said.

“When you understand those components, you can really help them understand things, and for most participants, their time horizon isn’t different than it was three months ago and their risk profile isn’t necessarily different than it was three months ago — just the marketplace and the outside pressures are very, very different,” he said.

Therefore, if a client is “not retiring in the next couple of years, we’ve got time to let this recover,” so the best course of action is to be patient, he said. That is what typically yields the best result — “we learned that really well in 2008-’09 and we remind the participants if they’ve been in plans since then, and most of them have, that they’ve ridden through times like this before and they learned the lesson of staying put,” he said.

Noting March 19 that he had “participated in many client engagement calls over the past two weeks,” Todd Jablonski, chief investment officer at Principal Global Investors, told ThinkAdvisor: “There is indeed concern” among many investors. Several of those clients “have a belief that the virus-associated risks could lead to a deep, deep impairment in global economic output that would be difficult to recover from,” he said.

However, Jablonski said he pointed out to those concerned clients: “The investment markets have seen drawdowns this large before. We have soldiered through each and every one and, in fact, taking money out of the markets often leaves one exposed to missing the biggest snapback days and that really impacts some of your long-term holdings.”

Kestra Financial, meanwhile, has been “fielding phone calls from our advisors” with concern about what has been happening and has provided training on how those advisors should ease the concerns of their clients, according to Taylor Hammons, its head of retirement plans.

What Hammons conceded is unusual about the current situation is that clients are concerned about their financial and physical health at the same time. However, “we don’t see a mass migration to cash” by investors as advisors are, by and large, successfully convincing clients that the best course of action is to discuss whether they are making the best investment decisions today that will accomplish what they need tomorrow, he said.

An Opportunity for Advisors

One bright spot for advisors is that dark days “remind us why it’s important for people to work with advisors,” according to Chantel Bonneau, wealth management advisor at Northwestern Mutual.

At the top of the list for advisors to explain to their clients is they should not “fall victim to buying high and selling low,” she said, explaining: “There’s a natural human reaction to want to stop the bleeding, but selling after a large fall is a long-term mistake for most people. It’s important to be clear on risk profile and time horizon and to coach clients to invest based on those factors rather than current market conditions.”

Advisors also should explain to their clients that it is best to keep contributing to their 401(k) and other retirement plans because “by doing so clients will be buying into the market at a lower average purchase price.” And, obviously, having a “financial plan is key,” so if a client does not have one, it is time to create one, she said.

Just because somebody has a retirement plan does not mean they have a good source for retirement advice. New Cerulli research indicates that many 401(k) plan participants (including 50% of participants in their 50s) do not have any official source for retirement advice, and that “advice gap” is especially acute for investors in lower wealth tiers.

Meanwhile, almost 50% of participants expect to draw on their 401(k) as a primary source of income in retirement. “To deliver an effective and attractive retirement income solution, providers and financial advisors must emphasize Social Security and propose strategies that integrate government benefits with income generated from other investment products,” according to Anastasia Krymkowski, Cerulli associate director of retirement.

It is best that everybody keep in mind that there are some things out of everybody’s control and advisors should avoid making promises based on a claim that they have a crystal ball and can see into the future, she told ThinkAdvisor.

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Jeff Berman