Sure, in the short term, corporate earnings will be “crushed”; but once the turnaround comes, they’ll “explode,” Harold Evensky tells ThinkAdvisor in an interview.
The coronavirus pandemic and the blow it has inflicted on markets and the economy cause people to take note of the industry’s good financial advisors and generate increased client trust in them, says “The Dean of Financial Planning,” as Evensky is known.
The veteran advisor, 77, chair of Miami-based Evensky & Katz/Foldes Financial Wealth Management, which he co-founded in 1986, no longer manages the firm’s day-to-day business but consults to the practice regularly.
What do clients want most from their advisors at this moment? A proactive phone call to comfort them, says Evensky.
In the interview, he suggests some specific comforting telephone dialogue.
When it comes to investing, clients should be revisiting financial plans and rebalancing their portfolios, according to the certified financial planner, who predicts that the COVID-19 catastrophe will mean that, in the future, advisors will focus more on holistic financial planning.
ThinkAdvisor interviewed Evensky on Tuesday. He was speaking by phone from his home in Lubbock, Texas. As for the future of his own practice, established more than three decades ago, he shared a few long-range plans.
Here are highlights of our conversation:
THINKADVISOR: What are your words of wisdom at this difficult time?
HAROLD EVENSKY: There’s no earthly reason to believe that this is permanent. The world economy will recover. Markets will recover. It’s not like every company in the world has gone bankrupt and will stay that way forever.
Can the crisis boost trust in clients’ financial advisors and strengthen the FA-client relationship?
Absolutely. This is when we earn our money. When the market is going straight up, everyone looks brilliant, though good advisors often look stupid because we’re very diversified. But in times like now, we look a lot smarter because we’re diversified and are very proactive: We talk to our clients, hold their hands and keep them from jumping off bridges.
That demonstrates value-add. Does it not?
It’s a time when people appreciate the value of what we do. When the market is going up, it doesn’t look like we add much value: “What do I need you for when I can get rich all by myself!”
Therefore, advisors should be calling clients proactively?
Yes. If the clients call us first, we’ve made a mistake. We need to call them.
What do clients need most from their advisors right now?
Comfort, assurance, information on how they stand, what, if anything, they should be doing [about their investments] and should they be paying attention to the talking heads on TV and radio. Mostly, clients just want to hear from their advisors [period].
That’s pretty much not the typical case. Right?
In times like this, it’s classic that brokers and bankers hide under their desks and don’t call because they don’t know what to say.
What should they say, then?
Not talk about the market that much but rather: How are you doing? How are you feeling about all this? What are you doing to protect yourself? How’s the family? Then: Let’s talk about your circumstances: We’ve updated your plan, and you’re in fine shape. You have plenty of cash reserve that we set aside for times like this. We’ve got plenty of time, and things are going to get better.
But clearly, this crisis will have severe impact on corporate earnings. Your thoughts?
Short term, they’re going to be crushed. But when the economy turns around, I think they’ll explode. I have no idea when that will be. The world has been through lots of horrible traumatic events and has survived. The best guess is that we’ll survive this one, too.
At what point should clients rebalance their portfolios?
They should be doing that now. But not on a day when things are going bonkers.
Broadly, how should investors rebalance?
The market is holding a grand sale. Generally [speaking], I would be selling bonds and buying stocks. Follow [the client’s] investment policy. The key is not having to sell stocks right now. If you do, you’re going to lock in those losses. If you’re counting on a very short life expectancy, better hope you’re right because if you live beyond that, you’ll end up existing on cat food.
What vehicles for stocks do you suggest?
Basically ETFs and index funds. You want to own the market, not an individual position or sector. Start off with a broad market investment such as the S&P 500 or a global investment — something that’s going to buy across the world.
If you can expand beyond that, buy some small-cap and then beyond that, international, then some emerging markets.
So zeroing in on a particular sector isn’t a good idea?
Not unless you’re a gambler. You should invest in the market. Trying to pick sectors is akin to market timing. If you’re right, you’re going to get rich. If you’re wrong, you’re going to be poor. I don’t know anyone who was successful long term making money on sector investing.
You’ve suggested selling bonds. Aren’t many pre-retirees mostly in bonds?
Not unless they’ve got an awful lot of money. People confuse certainty with safety. Putting your money in cash, bonds and CDs gives certainty that, yes, you’ll have that money. But it’s not very safe because over time, inflation will erode the value of that quote-unquote safe money. Safety is a portfolio that has both [equities] and fixed [income]. That balance is unique to every person.
Should clients change their retirement plan now?
Assuming they don’t need all the money tomorrow and have a 10- to-20-year life expectancy, it shouldn’t upset their [current] plan. But they should be revisiting and updating those plans. The losses are unlikely to be permanent. Clients have to plan for the long term and not for tomorrow.
Do you have any estimate on when the market will come back?
I have no idea. But whether it’s six months or two years or five years, the point is that long-term planning doesn’t mean six months or two or five years. It means 10 to 15 or 20 years. So if you plan for that and are rebalancing, you’ll end up holding a lot more cheap stocks than you did before — and you’re likely to be in better shape down the road.
To what extent will the pandemic and its effects change how financial advisors do business in the future?
I don’t think it will fundamentally change it. But it will refocus advisors on being financial planners and move away from just trying to be market timers or investment advisors. They’ll show the value of being real planners, thinking about their clients holistically and not trying to beat the system. They’ll try to help clients meet goals they can live with.
What are your own plans regarding Evensky & Katz/Foldes Financial Wealth Management?
I’m still involved in it but not in the daily business. I’m, sort of, like the grand old guru consultant. But I talk to Steve Foldes [vice chair] all the time. At some point he’ll be retiring. I don’t know when. I haven’t talked to him about it.
Who will run the business when that happens?
I have eight partners. My junior people have had some ownership for many years; so we have a very strong team. The business is very viable. When Deena [Katz] and I sell off the balance of our interest, we’ll have more owners.
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