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Financial crisis haunts clients 10 years later

It’s been 10 years since the financial crisis saw banks crumble, homes foreclosed on and portfolio values plummet.

And as the global community looks back on what became a worldwide calamity, the obvious question is whether today’s investors are better prepared for the next market crash.

Financial advisors believe they are.

Thanks to a change in client mentality since the Great Recession, 61% of advisors believe that investors are indeed better prepared for the next market plunge, according to a poll from Nationwide Advisory Solutions.

The advisor/client relationship has evolved since 2008 as more planners take a holistic approach and consumers want more guarantees and security, says Craig Hawley, head of Nationwide Advisory Solutions.

The survey found specifically that advisors say investors today are more likely to work with a financial professional (74%); more likely to follow their advice (90%); and, crucially, more willing to make a financial plan and stick to it (84%).

Not sticking to a plan was the undoing of many investors during the crisis. “From the late 90s to the financial crisis, there were a lot of advisors that were trying to pitch alpha, their ability to outperform, and they were sort of selling performance,” Hawley says. “Then the market crisis comes and I remember there being stories about buy-and-hold is dead. That makes no sense anymore.”

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Indeed, even then clients who bought and held during that period were able to “recover very nicely,” he says, compared to investors who “sold low and bought high.”

And while hindsight may be 20/20, that was a hard lesson to remember for a lot of investors when the sky was falling in 2008.

Kerri Kimball of Apogee Wealth Advisors in New York, a career changer who became an advisor in 2005, saw this first hand.

“People who had gotten overexcited and taken risks during the boom years lost 30% to 40% or more of their portfolios and came looking for … a more realistic assessment of their risk tolerance,” Kimball says.

“In a year when everybody is making money they think ‘Oh, I’m fine I can be aggressive,’” Kimball says. But then in a down year, she says they change their tune to, ‘Hey, I actually don’t like losing money.’"

Still, the worst thing they could have done was sell, she says, “because then you’re making the mistake of the average investor.” While it may go against a client’s instincts to “hang on and ride it out,” Kimball says that’s the best strategy to take.

Jamie Dimon and Lloyd Blankfein remain prominent public figures, but many other crisis-era CEOs have kept low profiles over the past decade.
August 20

“Where people really lost money was if they made a move at the bottom,” she adds. She didn’t recommend that for her existing clients, but did get new clients at the time who had gone all cash at the bottom.

“That’s the worst, those are the tough cases,” she says. “It’s really hard because then you’ve got this portfolio sitting in cash and how do you know when to go back in the market? There’s no guarantee that you’re going to hit the perfect day. So we gradually phased the money back into the market.”

One of the hardest things for clients to come to terms with is that when the market is declining it is okay not to do anything because they’re not going to lose everything, says advisor Edward Snyder of Oaktree Financial Advisors in Carmel, Indiana. He’s had clients come in and tell him that they don’t want to lose everything the way they did in 2008.

“People tend to use these really dramatic words like ‘wiped out.’ Well, it didn’t go to zero and it’s not going to,” he says. “I know it was dramatic and no one likes to see it go down but [with proper education] you’re not going to lose everything.”

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