When investors turn to advisors to help them with their retirement and other financial plans, it is usually a good idea to listen to the valuable advice they are paying for — especially during a pandemic that has created a global economic crisis.
However, not all clients are created equal, and there are some of them who just won’t listen to reason and think they know more than their advisors even though those clients have little to no experience in investing and related financial issues.
That was the situation that Rose Swanger, principal of Advise Finance in Knoxville, Tennessee, recently found herself in, she told ThinkAdvisor in a phone interview.
One observation she made during the early days of the pandemic, she said, was that her “millennial clients who had the most aggressive risk tolerance score (90 out of 100) prior to the pandemic became the most conservative or froze” when the pandemic started in the U.S.
“I had one couple” — the husband was in his late 20s and the wife in her early 30s — who “actually liquidated [their] entire portfolio to cash despite my reasoning with them” to not do that over concern with what was happening with the stock market, she recalled.
The couple work in IT and, prior to that, were supposed to convert a rollover IRA to a Roth IRA in December, “but they couldn’t decide because they didn’t want to pay the tax” at the time, so they held off, she said.
“When the market started to dive precipitously, I told them it would be a great opportunity to gradually convert their rollover IRA to [a] Roth and pay the minimum tax,” she said. However, she added: “To my surprise, the wife relayed [the] message that her husband thought the market would dip even lower, and they wanted to wait until the market bottomed out. Sounds like they had a crystal ball that the rest of us didn’t have.”
And so they waited longer. She told them they had their “best opportunity” to make a Roth conversion when the Dow Jones Industrial Average dropped from about 29,000 to about 18,000 in mid-March, she said.
However, at that point, “instead of following my advice,” the husband said they were going to change everything they had left in their three IRAs into cash, she recalled.
Shocked, she told them right away that if they did that they would “lock in the loss … and you cannot even deduct that loss” because it’s from a retirement account. The husband, however, responded: “I don’t care. All I want is cash,” she recalled, adding they stood their ground despite her attempts to try and get them to change their minds.
So, the couple put everything left in their IRAs — their entire portfolio with her — into cash in March, after losing nearly $13,000 between them on those accounts while waiting to make a decision, she said.
After liquidating their IRAs, the couple had to do something with their fee-based account for it to continue being managed, such as add a contribution, and she sent them paperwork, she noted. However, “they’re just sitting on it — they have not done anything, [and] it’s very frustrating … At this point, I really don’t know what to do with them.”
If the couple would have stayed invested in their IRAs, 90% of their value could have been back already since March, she said.
In her 10 years since starting the firm, they were her only clients to liquidate all their holdings, she said.
Another Couple’s Better Moves
Swanger had another millennial couple that was ready to make a contribution for a Roth IRA, but because of COVID-19, they decided to instead hold that cash a little longer, she recalled. But this couple was older than the first couple — in their late 30s to early 40s — and more savvy.
This husband is a musician, and many of his scheduled private music gigs were canceled as a result of the pandemic. The wife’s firm was laying people off, so she was concerned about what might happen with her job, Swanger said.
Because of their situation, “I don’t blame them [for] wanting to hold onto cash a little bit” to see what would happen, she noted. “I agreed with them” — it was “very smart to hold on cash until you’re ready,” she said.
The couple was supposed to make a contribution to the Roth IRA in March but didn’t as of July, so Swanger said she continued to keep in touch with them to remind them. “Now they’re ready to do it” because 95% of their wealth returned since the volatility of March, she said. The contribution was made for them by Swanger on Monday, she noted.
A ‘Different Mentality’
Swanger’s other clients — mainly in their 50s and 60s — pretty much stayed put and didn’t do much with their portfolios so far during this pandemic, she said, adding: “They have a different mentality.”
For example, she called a female client in her 70s, who told Swanger: “Nothing worries me … I’m good. You do whatever you need to do” with her portfolio. Another couple, in their late 50s, reached out to the advisor looking to make an investment with the cash they had, she said, adding: “They’re fun to work with.”
Two other observations she made during the pandemic so far: (1) “People who had an annuity… were so happy about that.” (2) It is crucial to stay in contact with clients who are planning to make IRA contributions because they often forget about those plans.
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