Like most financial advisors now, Robert DeHollander knows that it is not enough to counsel just waiting out the storm as the lockdown batters the economy.
The Greenville, S.C., advisor has seen the spectrum of effects in his clients from business owners who have had to shutter their operations to those on the essential side of things scrambling to keep up, and everybody in between.
“We got to hear everybody’s story,” DeHollander said of reaching out to clients. “And it was educational because I don’t know that I had fully appreciated how pervasive the shutdown was and every nook and cranny of the economy that’s receiving damage from it. Talking to our clients in disparate stages of life, different industries, different roles, it was really an eye-opener.”
Financial planners tended to counsel their clients to hold tight in the early days of the COVID-19 crisis. But now, only about a third of certified financial planners are giving that advice, according to a survey of 1,078 CFP professionals conducted between April 6 and April 13.
The CFP Board poll showed that 36% say their primary recommendation to clients is to sit tight and wait to make any major financial decisions until volatility decreases. Most advisors are finding anxious clients, with 64% of planners seeing clients experiencing high or very high levels of stress. The survey found that the top three financial concerns clients have expressed are managing volatility (74%), protecting assets (72%) and liquidity (35%).
DeHollander finds himself dipping into behavioral economics to help his clients cope with the stress. First of all, he recognizes that clients in stress are not necessarily listening to rational logic.
“In the midst of a crisis, it’s our lizard brain, it’s human nature, that tells us that it’s going to go on forever like this and that it’s going to get worse,” DeHollander said.
First, he offers context to show that downs also have ups.
“We have to step in and say, ‘Look, we lived through the tech wreck. We lived through 9/11. We lived through ’08. We lived through all the crises in all our collective memories,’” he said. “’We made it through and it got better.’”
Then he has clients envision their future selves.
“We don’t want to diminish the magnitude of what we’re going through, but we’re telling clients, ‘Imagine that you just put everything on hold and you woke up in 36 months. We probably have a vaccine for this. We probably have the economy back open. We probably have a better mechanism or plan the next time there is some type of a serious contagion that moves through our economy. We’re in a better place.’”
That helps clients feel that there is an end to the crisis. And three years is how long DeHollander thinks it will take to be completely on the other side of the damage the COVID crisis will cause.
“The challenge with this one is essentially we’re living through a triple Black Swan event,” he said. “We have a pandemic; we have an economic crisis; and now we have an oil crisis all overlaid at the same time.”
Building The Firewall
The second part of DeHollander’s message to clients is that the downturn also presents some opportunities.
“We’re using this to rebalance portfolios and we’re overweighting certain sectors that we think will hold up better during the crisis and should recover quicker coming out of it,” he said. “We did that on March 23 and it just so happened that, at least so far, that was the bottom of the market. The next day we had the best day in the markets since 1933. There was a lot of luck involved in that, but we did repurchase stocks just because they look so deeply oversold.”
DeHollander focused on the technology and healthcare sectors. He said he does not often make big moves like that. But that he looks at the overall picture as a tactical asset allocator.
“We build long-term portfolios,” he said. “We like to invest with the idea of a normal market cycle. But there are just weird times in the market like December 2018 and March 2020, when you have these events that are imbalances and at that time we tend to rebalance and reallocate.”
He also developed business practices from the 2008 aftermath. At that time, he used what he called old-fashioned, paper-based risk questionnaires where clients would pick A, B, C, or D.
“And no matter how many times we did that,” DeHollander said, “it just didn’t illustrate risk well.”
That led him to develop strategies to help the 120 households that he serves [with $1 million and $5 million in investable assets] to be more secure in their financial position.
Two primary strategies are:
He stress-tests clients’ investments by using Riskalyze and MoneyGuide Pro to show clients how their financial position would fare in situations such as the Great Recession and the early 2000s recession. Then clients’ risk tolerance can guide their own choices whether to be more or less aggressive.
DeHollander uses a bucket strategy to protect clients. The first bucket is safe money they should be able to live on for three to five years, he said. Then the next several years would be funded by bonds, annuities and fixed income assets. The third bucket is for equities. So today’s downturn is diluted by many years of growth.
Even though he came from an engineering background before his 21 years of financial advising, he learned that the human side of the business is at least as important as the charts and projections.
“I sort of survived in spite of myself the first few years,” he said. “Then I got the understanding that people really care more about feeling safe, having a relationship with somebody that they trust, that is competent. It’s more about having a good plan and a good trusted guide to help come beside them and walk them along.”
The Human Side Of Money
Elizabeth Windisch, a registered investment advisor with Aspen Wealth Management Inc. in Denver, also counsels clients to take the long view, even though they typically ask her to prognosticate what the markets will do in the short term.
She recognizes that is tough to do even in stable times. With the uncertainties around the pandemic, that question becomes even more problematic.
“I will answer it by saying, ‘You can’t touch this money for 20 years or 15 years,’ or whatever their situation is,” Windisch said, in an answer similar to DeHollander’s. “And I’m confident that, 15 years from now, you’re going to be fine.”
And also like DeHollander, Windisch finds that it is best to transcend the numbers and connect with the client. In these times, advisors can be more like counselors.
“I think we just to have compassion for clients and where they’re coming from,” she said. “We eat, sleep and breathe this every day, but they don’t. So, it’s very easy for us to be rational, but understanding where they’re coming from, and understanding that they may need to talk a little bit more than they usually do. If only because people are socially isolated. Sometimes I might be the only person that they talked to that day, so I’m not going to rush them off the phone.”
Taking the time to listen is key, said Michelle Buonincontri, a CFP who became a personal finance coach after years of feeling frustrated as an investment manager. She said clients needed help understanding their relationship with money to break their cycle of bad financial decisions.
Although she is more of a counselor than a money manager now, she said advisors can adopt more of the soft skills that clients need right now.
“If you weren’t the type of person that really listened before or paid attention to the cues of your clients, that now would be a really great time to start to learn those emotional IQ skills,” she said.
Part of it has to do with the difference between the way men and women approach problems. Advisors tend male-centric, she said. It’s all about the returns with them.
“With women, we’re more about the stories and our goals and are we meeting them?,” Buonincontri said. “We want to feel OK. We want things explained, and we want those that are more patient.”
But in other ways, men take a bit of patience as well because they tend to put up a wall of “I’m fine.”
“It’s been my experience that men will say, ‘Everything’s fine. Yeah, it’s great. It’s fine,’” she said. “And then you start digging a little bit, and you find out that he and his spouse are not on the same page financially. And they argue about money, and there are trust issues. And now you can start to talk about some of those things.”
Those are some of the skills that come into play in a time like this, when clients will need more than the “touch-base” check-in. An extra few questions might be in order, but it is even more important now to listen to the answers to detect if they are saying more than the words might indicate.
That might be especially true with clients cooped up with their families where money tensions can be racheted by relational stress. Buonincontri said finance is more than the dollars and cents on a spreadsheet, a fact she had reinforced by a client she helped recently.
“At one point, he apologized and said, ‘Oh, I know you’re not a therapist,’” Buonincontri recalled. “And I said, ‘Well, no, you’re right. I’m not a therapist, but money is very emotional.’”
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 firstname.lastname@example.org.
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