A recent cartoon in The New Yorker surely sums up many retirement investors' feelings toward their financial advisers: It depicts them being sacrificed to a volcano.
There is no getting around the fact that it is an intimidating time to be a financial adviser. Clients' retirement portfolios got slammed last year, and many investors are understandably furious. But mutual fund and brokerage executives say too many advisers are responding by doing the exact wrong thing: avoiding their clients.
"When you've just had a once-in-80-years-type correction, you'd better be holding your clients' hands," said Stephen Soden, chief executive officer of Tower Wealth Managers in Kansas City, Mo.
But it appears that many advisers have not yet reached out in a systematic way to invite clients to discuss the damage and agree on what to do next.
"A minority of banks have implemented proactive calling campaigns," said Scott Stathis, chief operating officer of Kehrer-Limra. "But the ones that have done it have been so successful that other banks are taking notice."
Jim Quinlan, president of Beneficial Advisors of Philadelphia, said it appears "many advisers in turbulent times just hide [because] they're afraid they don't have the answers."
Actually, advisers should be tracking down their clients, bringing them in for meetings and agreeing how to reposition their portfolios and salvage-or re-evaluate-their retirement plans, Quinlan said. Being proactive can help them retail clients and win new ones, he said. The longer advisers procrastinate, the more likely their clients will go elsewhere; conversely, reaching out can make such a good impression that clients make unsolicited referrals, Quinlan said.
Brokerage executives said it is hard to quantify how much new business they have gained as a result of taking the initiative when rivals have failed to do so. But Quinlan said it has helped Beneficial Advisors keep its annual client turnover at about 5%, its traditional level, even though many clients have had to cash out their accounts to make ends meet during the recession.
Brad Wastler, sales manager at Central Bancompany Investor Services, said the unit has gained about twice the percentage of assets as it has lost since the crisis began, and much of the gain came from investors fleeing uncommunicative advisers elsewhere.
If brokerages and advisers are slow to pick up the phone, that is understandable. Several agreed that the pain their clients have experienced is the worst within memory. By March, when the Dow Jones Industrial Average fell below 7,000, more than a decade of gains had vanished. And though the index rallied to more than 8,400 by early May, many investors had fled the market by then and locked in their losses. The crash was especially cruel to older investors, who have less time to recoup market losses.
"This has been a gut-wrenching experience for all investors, particularly for Baby Boomers," Soden said.
Bewildered and angry as they may be, investors need a plan, and most want to hear from their advisers. When the 25 advisers at Central Bancompany seek out such clients, they find that the conversations are less confrontational than they expected, Wastler said.
Certainly, though, Central's advisers have faced their share of unhappy investors. Explaining that the speed and severity of the market crash took virtually everyone by surprise does not always help, Wastler said. He tries to shift the conversation to how to regroup, but in many cases, investors simply need to sound off, whether at advisers, politicians or other targets, and advisers just have to listen.
As a practical matter, Wastler counsels his advisers to contact the top 50% of their clients, by revenue, as soon as possible. Quinlan does the same and tracks his reps' progress through customer relationship management software. Beneficial's advisers have worked their way through about 75% of their client lists since the market tanked in the fall, he said.
Once they have got the clients in front of them, of course, advisers need a plan of action. And that is where things get tricky, said Philip Moses, Raymond James Financial Services' program manager in Lake City, Fla.
The market crash, he said, made a hash of what advisers had long seen as the right investing solutions. Retirement planning models did not work, and neither did diversification, as almost all asset classes, including stocks, bonds and alternative investments, got caught in the undertow. As a result, retirement planners "are going to have to come up with new solutions for the hand we've been dealt," Moses said.
Many fund companies and advisers are sticking with their usual models, asking clients to re-examine their goals and risk tolerance, and suggesting weighting portfolios toward the more conservative end of the spectrum. But Moses found that back-to-the-playbook approach wanting, especially for older investors. Last fall he adopted a new approach and new investment products to ensure that most investors would have enough retirement income to meet their basic needs.
His four advisers break down retirement expenses into those that are essential and those that are not. Moses suggests that clients fill the gap between essential costs and expected income from Social Security and pensions by using single-premium immediate annuities. These more conservative annuities guarantee a certain monthly income over investors' lifetimes, and Moses had shied away from them until recently, because of concerns over their expenses.
Clients' remaining capital can be invested in a traditional portfolio. If all goes well, these funds can pay for nondiscretionary expenses such as vacations. Moses' approach includes the tough love of telling investors they will have to re-evaluate which nonessentials they can afford.
Brian Doherty, vice president of third-party distribution for New York Life Insurance Co.'s retirement arm, said that is something advisers have not done enough. "Those are conversations very few people are having with their clients, and it's critical to have them."
Quinlan said there is no good fix for those who are older and have absorbed big losses. "They need to work longer, unfortunately." That doesn't always mean full-time work, he added. Plus, putting the extended period of work in context against longer modern life expectancies helps the idea go down a bit easier.
At PrimeVest Financial Services in Lake City, Ind., investment advisers are reaching out to top clients, but only to a certain extent. Dennis Reeve, program manager, said that with so many customers fleeing firms, his team has to make time for meeting with prospects.
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