One of the toughest conversations to have with a client is to tell them not to panic sell in a rapid market downturn. Your professional knowledge and instincts clash with investor fears.

But while counseling a client at that moment, the advisor faces two different challenges:  figuring out if there is an acute financial need motivating their client's emotions, and remembering a client's decision to sell, no matter the outcome, must be implemented.

“Is today the day you are selling everything?” Margaret Eddy, president of San Diego–based Creative Capital Management, asks when her clients want to know their portfolio’s value. “Do you remember 2008?”

The initial approach among most advisors is to halt clients who panic and want to pull out immediately when the market begins to drop off.

“History tells us we shouldn’t try to trade into this. The recovery time will be infinitely shorter than anyone imagines. You feel the pain the most as it happens,” warns Kelly Rigas, who founded KR Wealth Management Group in Dallas two years ago, after years of working for wirehouses.

However, some clients may have sound reasons for divesting at a time that happens to coincide with a stock market decline. They may have a previously scheduled timetable for getting out because of a housing or schooling purchase; they may have planned to start divesting for a previously selected retirement date; or they may have encountered an unexpected and sizable expense that will deplete their emergency funds.

And then there will be clients who present such financial planning motivations disingenuously in an attempt to cloak panic, driving them to divest their assets from the equity markets. In such instances, veteran advisors recognize they have to engage, as many did this month, in numerous conversations with clients to suss out the situation.

“That’s the gut check,” says Rigas, whose firm has $100 million in assets under management. She has told clients who have represented their stock-sell requests as legitimately driven by their financial-planning needs that it’s worth it to wait at least a day or two. “I’m really encouraging them to look at our economy, look at corporate debt, where is it compared to where it was eight years ago. Corrections can be swift but there is a recovery,” she says. But she knows from experience and from what she has heard: “There is always a good reason to justify what is an emotional response.”


From the get-go, David Garcia has structured his relationships with clients to preclude any urgent divestment attempts of any kind. “Our mantra is, anything you need in the next five years should not be exposed to the markets,” says Garcia, a principal in the Miami office of Evensky & Katz/Foldes Financial Wealth Management, which has $1.5 billion in AUM. “Over the next 24 months, the market could be up or down,” he says.

According to his well-laid plans, his clients have 12 months' worth of cash on hand, taken out on schedule, six month in advance of any need. “We don’t just manage assets, we do financial planning," Garcia says. "Our first thing is coming up with a financial plan. So we can identify these life events and plan around them. We carve out living expenses one year at a time."

Once he sees a client’s account is six months away from needing the next annual cash installment, “I’m looking for a good time to divest,” Garcia says. If such timing coincides with a market that has not yet corrected a correction, he will go to the low-end of the client’s bond portfolio for the cash. “Most of our clients aren’t completely in stocks,” he says. His clock-like precision in keeping up with his clients’ cash needs meant when they called during the correction and asked about possibly needing to cutback spending, Garcia could assure them: “Absolutely not.”


Eddy too has set aside for her clients 12 months’ worth of cash. And she also intends to pull from the bond side if they need money in the near future. Because her clients keep more cash on hand, their total portfolio return on investment numbers may not “win me any gold ribbons,” Eddy says.

But Eddy's firm manages $287 million. Her background as a financial planner and an asset manager primes her to take comfort in knowing that she has cash for her clients. On one of the days when the market nosedived, Eddy received an email from a client. “Just know we are there with you. We are fine,” the message said. “I almost cried when I read that. We are fortunate to have such good clients,” Eddy says.

But Eddy also recognizes that if clients insist on selling stock, their wish prevails. “We are not the gate keeper. We have to be and act as the hired help,” she says.

Ross Gerber agrees. “It’s very important for advisors to understand we are simply advisors. It’s not our money. I usually do get people to do what I want them to do because I don’t like to work with people who don’t listen to me,” says Gerber, whose Santa Monica, Calif.-based firm, Gerber Kawasaki Wealth & Investment Management, manages $375 million in AUM. But Gerber concedes he also counts among clients at least one for whom he plans this week to implement a sell order.

Her clients’ responses to the equity markets’ volatility this week both stunned and pleased Judith McGee of McGee Wealth Management in Portland, Ore., which has $410 million in AUM. “Most of the calls have been from clients asking if it’s time to buy in,” she says. “They’ve lived through 2008 and 2009 and they are sophisticated,” she says.

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