As tough as it is to keep reminding clients about focusing on the long view, advisors are sticking with the message – a message that American College of Financial Services also reinforced.
But as the equities markets slide into bear territory, clients are increasingly demanding changes and Financial Planning Association members said they are stepping up to help make responsible adjustments.
Matt Chancey, Tampa, Fla., said each client needs a response based on their situation and perspective. Some clients definitely want changes and it is up to the advisor to help with that.
“Every client is different. And I think the goal is to help the client get the best outcome based on their belief system. Many of my clients have decided to dial back the risk but yet stay invested. You have to be mindful of reallocation or selling in brokerage accounts due to taxes. But in IRA accounts taxes aren't an issue. Some clients are looking to shift to income away from growth, and maybe this is a good time for them to make that move. And if a client decides to get out of the market, you have to make sure you have a conversation about when to get back in.”
-- Matt Chancey
Melissa B. Brennan, ARS Private Wealth in Plano, Texas, said she is reinforcing the long view, but knows that some clients are fixated on the short-term plummet in equity prices. She helps them do that responsibly.
“We know that long term, the market succeeds, and that most people need market returns to meet their financial goals. A properly constructed portfolio will take market volatility into account when designed. Now is when advisors earn their keep by calming nerves and refocusing their clients’ attention on purposeful portfolio construction. Instead of bailing, it’s time to rebalance and make tactical changes.”
--Melissa B. Brennan
Scott A. Bishop, STA Wealth Management, Houston, said he turns to the dean of value investing, Warren Buffett, in times like these.
“I think following Warren Buffet's advice about ‘Being greedy when others are fearful (now) and fearful when others are greedy (2019),’ may turn into a very good buying opportunity. But you should not ‘speculate’ on emotion, but rather have a plan and follow it. I am a big believer on gut checking your financial and investment plan in good times so you don't react when it gets ‘scary’ and fear sets in.”
--Scott A. Bishop
Marc B. Schindler, Pivot Point Advisors, Bellaire, Texas, said he understands clients’ urge to dump stocks right now, but explains the difficulties in doing that.
“The coronavirus has shaken world markets and it is likely that it will continue to do so. The natural response to such events is to sell everything and wait for it to blow over. However, it is very difficult to do this well. It is difficult because it requires detailed predictions. In order to decide whether to buy or sell today, we have to predict whether the virus will fizzle out or turn into a pandemic, whether the virus will inflict enough damage to tip the world economy into recession, what the central banks will do and whether it will be effective, how people will feel about all that, and countless other factors that may determine the economic outcome. Based on the same facts but different forecasts, one person may decide that the recent declines are a buying opportunity, while another person may think this is the beginning of the end.”
--Marc B. Schindler
Survey Shows Most Sticking To Plan
The advisors’ comments are in line with results from a Market Volatility Flash Survey conducted by The American College's Retirement Income Certified Professional advisors.
Some of the key takeaways from the RICP survey are:
- More than 65 percent of advisors indicated their clients have been more likely to reach out to them due to recent market volatility.
- Of those clients, 68 percent are either in retirement or one to five years away from retirement age.
- Half of clients indicated that they are more concerned about retirement security this year than last year.
- Even though clients are showing more concern, over 60 percent of advisors reported that none of their clients had made changes to their plan as a result of recent market performance.
According to the RICP advisors surveyed, the strategies they employ to help clients build a plan that safeguards against market turmoil include:
- Staying in touch with clients through market volatility.
- Advising them to build a floor of guaranteed income not subject to market volatility.
- Using a cash reserve which can be tapped in a down market.
- Creating multiple portfolios for different time periods in retirement and making the longest-term portfolio more aggressive.
American College educators reinforced the importance of focusing on the long view.
Wade Pfau, co-director of the Center for Retirement Income, said advisors do well to look at what history says about investing.
“Despite the stress that market volatility causes, investors are generally better off to stay the course with their strategy, as the downturn is reducing the stock allocation without any further need to sell."
Dave Littell, co-creator of the RICP curriculum, said the news is most distressing to those around retirement age.
“A late-cycle economy always brings an uptick in investor anxiety, but the recent market volatility from the coronavirus is really packing a one-two punch on retirees and near-retirees’ sense of security. However, the fact that a majority are leaving their plans alone to weather this storm shows that client confidence in our RICPs and the plans that they’ve built are strong.”
Steve Parrish, co-director of the Center of Retirement Income, said disruption should be expected – and anticipated by prudent planning.
"This is not yet a black swan event – we all knew that a virus could disrupt the markets, and even cause a panic. Our findings reiterate that unless you enjoy market speculation as a sport, there’s really no strategy to better insulate your retirement capital exposure other than to ride the market out – especially if you’re not yet retired.”
Steven A. Morelli is editor-in-chief for AdvisorNews. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at email@example.com.
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