Lean on Me

David Jackson knows just how much the stock market’s cascading losses have shaken some investors. The financial planner with Waddell & Reed Financial Services in Kansas City, Missouri, recently held a marathon discussion with a longstanding client. “She was convinced we were going into a depression,” he recalls. “She left me totally wiped out. I told her, ‘I’ve never seen this fatalistic side of you before!’ ”

Welcome to life as a financial planner in the midst of the greatest market crisis in 80 years. More than ever, advisers are dealing with the raw emotions of the men and women they serve. Many are becoming financial consolers as well as financial counselors. Little wonder. The Dow Jones industrial average lost 33.8% last year while the S&P 500 dropped 38.5%, the biggest one-year decline since 1937. The NASDAQ fell 40.5%. Investors are feeling battered and bruised. Adding to the  misery are the housing market collapse, credit crunch, and recession.

Advisers are stepping in to nurse the wounds. Like any good personal therapist, planners try to stay cool and rational even when clients are hitting the panic button. It’s no surprise, of course, that some investors have the jitters, considering what’s at stake–their plans to buy a house, to retire, to live comfortably. Their sense of self-worth can lie in the balance, advisers say.

“People have strong feelings about

money,” says Dwight Raiford, a senior financial planner with MetLife in New York. “It’s a highly charged, emotional topic.” Raiford handles 70 clients and $18 million in assets.

Jackson, who oversees $20 million for more than 300 clients, has seen 20 or so look to cut their losses. “They’ve said, ‘Get my money out of the stock market–I can’t take it anymore.’” Frustrated clients don’t want speeches about how the market always bounces back. In fact, they don’t want to talk at all. “Some have said, ‘This is a directive, not a discussion,’” says Jackson. “They’ve said, ‘Let’s go all to cash, and we’ll reassess things over the next few months.’ ”

This particular downturn is different from those in the past. As the stock market plummeted, newspapers, magazines, television, and Internet outlets stoked fears by relentlessly reporting the bad news. “The proliferation of financial information has gotten out of hand,” says Gregory Anderson, founder, CEO, and wealth manager at GRAnderson Wealth Management Group in Denver. Anderson manages nearly $10 million for 130 clients. “People are being bombarded, and they are uncertain about what they should be doing.” The media chorus can be particularly intimidating for those who are new to investing–as are many of Jackson’s African American clients. Indeed, Jackson sees a level of nervousness that worries him. “People are reacting emotionally instead of logically,” he says. That can be dangerous. Converting stocks to cash, for instance, only locks in what are now merely losses on paper.

Advisers say that most of their clients are concerned but remain committed to comprehensive, long-term plans. Still, there are plenty who are hesitant. As a result, advisers have been working overtime to update and pacify those they work with.

Lately, 12- to 14-hour days are not uncommon for Gary Jones, a financial adviser with UBS Wealth Management in Atlanta. Jones makes a point of initiating contact with his 60 clients rather than waiting for them to call him. “A lot of them candidly express their fear about what’s going on,” says Jones, who manages $7.5 million for his clients. “They want reassurance–that’s what it comes down to.”

The best advisers don’t lecture their nervous clients about staying calm. Instead, they inject a rational viewpoint into the equation. When clients are losing their cool, advisers must keep theirs. A common approach is to sit a client down and review not the recent performance of their holdings, but the original reasons that prompted the client to invest. “The first thing we do is revisit why we’re in the market in the first place,” says Raiford. Drawing clients’ focus from the media chatter to their long-term financial plans, such as funding their retirement or putting a loved-one through college, brings about much-needed perspective, he says.

Unquestionably, the current down cycle is not a typical market correction. But while they’re waiting for the market to rebound there is something investors can do: rebalance their holdings. Certainly a portfolio should be well-diversified. It should contain a mixture of riskier, aggressive investments and safe ones. And, naturally, investors approaching or already in retirement should have a more conservative portfolio overall, advisers say.

“This is a cycle, not a cliff,” Raiford points out. “The world is not flat; we’re not going to fall off the edge here.” To bolster his argument, Raiford walks investors through the history of the market’s crises, from the Great Depression to the double-digit inflation days of the 1970s, and shows them that it has always come back around.
Allen Bruce, a financial adviser with independent broker-dealer H. Beck Inc. in Silver Spring, Maryland, manages approximately $40 million for roughly 200 clients. One client, a widow in her early 60s, recently told him she wanted to get her money out of the market. More than 30% of her portfolio was in cash; most of the rest was in conservative equity funds and bond funds. “She was alarmed about all the noise around her,” says Bruce, who pointed out that her cash gave her plenty of room to retire, as planned, in a year. What’s more, he reminded her that she

had also panicked during the dot-com crash–after which she stayed in the market and did well. While the current market situation is scarier than the earlier one, “it helps that I had a track record there,” Bruce says.

This sort of reassurance must be mixed with honesty, he adds. It’s all well and good to tell clients that the economy and the markets will rebound–but Bruce admits to them that he’s not sure if it will take 18 months, two years, or five years. “I don’t have a crystal ball,” he says. “I do know that the only way to make sure you’ll lose is to get out now, when the market is down.” Jones strikes a similar note, telling clients that “2009 probably won’t have a lot of good news, but hopefully it won’t be as bad as 2008.”

Most often these days advisers are persuading clients not to quit the market. There is one test, however, several planners say they use before blessing a client’s decision to cut back on risk: the sleep test. The best advice is pointless when clients are suffering emotionally, most advisers agree. “I don’t want you losing sleep at night,” Jackson tells those few clients who can’t stand the pain. “So let’s make a change.”

This article originally appeared in the March 2009 issue of Black Enterprise magazine.