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Portfolio > Portfolio Construction

How an Advisor Helped a Laid-Off Marketing Exec

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Much of the U.S. retail sector has been hit especially hard by the COVID-19 pandemic — one just has to look at the growing number of store closures and retail bankruptcies across the country for evidence.

That reality is all too clear for a client of Jane DeLashmutt O’Mara, a certified financial planner. The portfolio manager at FBB Capital Partners in Maryland told ThinkAdvisor about a longtime client of hers who, at about 50 years old, lost her marketing job at an online retailer in the middle of the pandemic.

“She contacted me the first week in May” about being laid off from her executive-level position that week after only about three months at the company, the advisor recalled. The client had been the main “breadwinner for her family” — which includes a husband who is still working but at a reduced salary and two young kids — “and now she finds herself in the midst of a global pandemic,” at the same time that “marketing positions are being shrunk, if anything,” at many companies, DeLashmutt O’Mara said.

During that phone call with the client, “we went through sort of like a laundry list of steps that she could immediately start taking to stop some of the outgoing cash flow that she had sort of automated in her savings plan,” and the talk also included her income stream and how to deal with health care, debt payments and other issues, the advisor recalled.

One way she could save money right off the bat was on dropping the payments she was making for lawn care, she noted.

Other topics DeLashmutt O’Mara has been discussing with clients during the pandemic, she noted, include budgeting, workplace retirement plans, deferred compensation, IRA distributions and insurance.

This particular client “felt like she had financially what she needed to get through this, but she was concerned,” the advisor noted, adding: “I don’t think that she feels that she has many opportunities to reenter the workforce probably for the next year.

I think she received some sort of a severance package, which is going to keep her whole here for at least a couple of quarters. And then fortunately we had been working with her now for many years and have been working together to build up a cash reserve and so the cash is going to really help her to, I think, feel confident to get through this.”

The client “wasn’t so much worried about her investment portfolio because she’s still pretty young relative to, I think, what she feels her retirement age will be,” the advisor noted. “But I do think that she’ll consider looking at potentially refinancing outstanding loans that they have,” she said, noting the main issues were resolved in a couple of phone calls.

As it stands now, “school’s out,” the client is “home with the kids and looking for work, [but] she did mention that she was able to find some kind of contract work” from a friend who needed help, which is “keeping her a little bit busy,” the advisor said.

She added that the client was upbeat about her family’s “fairly conservative” portfolio of about $1.5 million in assets, but not so much about her chances to find another full-time position in her field quickly.

A Tricky Decision

DeLashmutt O’Mara also pointed to a few clients, including new ones added early in 2020, who had a tough decision to make when it came to the decision to either keep risky stocks they were too heavily invested in or sell them quickly and pay capital gains taxes on them.

One retired couple in their 70s “came onboard with just around 90% stock” as part of a portfolio they had with another advisor, she recalled, adding: “Given their distributions from the portfolio, the allocation was just completely wrong.

That said, they were willing to discuss making changes to the portfolio. But they were procrastinating on the decision and then finally, by the time that they agreed to move forward with the plan, it was mid-March, just before things really bottomed out.

They did have significant energy exposure, as well as retail exposure. They were kind of buy-and-hold investors who had a whole bunch of stock literally that they probably owned for 30 years or more. Many of the names were no longer what we would consider to be really great investments.”

The clients’ hesitancy to unload the stocks, as the firm advised, resulted in a bad situation becoming worse, DeLashmutt O’Mara said.

Their portfolio declined in value so much that, even after the market recovery, the clients had lost more than $200,000 since the start of 2020, she said, “rather than paying [$25,000] to $50,000 in taxes on gains.”

And while “hindsight is 20/20,” the plain truth was the couple had “significant exposure to cyclical areas of the market like energy, industrials, retail and that sort of thing, [so] at any time that you had looked at this portfolio …  you would have known to reduce those areas,” she explained.

In stark contrast, there were other clients who agreed in February to reduce their overexposure in certain risky stocks, while paying the capital gains taxes on them, and “we were able to get them out of a lot of high-risk areas, so they’re in much better shape,” she said.

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