"I met with a client last week who was just bereft," says Ryan. "He was almost confessional about it. He said 'I know it's a wrong time to get out, but I just can't take it any more.' I counseled him to think with his head about what he was doing. Most can say, 'Thanks, I'll stick it out.' This client said, 'I understand what you're saying, but my stomach is in knots. I can live better knowing I got out and incurred the losses,'" Ryan says.
He calls it a "misjudgment" on his part to not sense the client's true risk tolerance earlier. Other planners have had nearly exact experiences. Morris lost two clients last year who had tried to pull out of the market, but were counseled by the advisor to stay at least partially invested. That's her best guess as to their reason for leaving, she says, since neither responded to phone calls. "It was sad, since their portfolios have held up nicely."
The lesson? Not all clients are going to have the fortitude to be rationale in the face of a long-term bear market, no matter how well you preach the gospel of stock market history. Say your piece, appeal to their intellect. Ask them to put emotions aside. But be sure it's them, not you, making the final decision.
Go The Extra Step
Smart planners are using newsletters, phone calls, e-mail and Web sites to soothe clients and help keep them on track. Paula Hogan, president of Hogan Financial Management, Milwaukee, says it's imperative to keep the lines of communication open. Hogan is adding short, handwritten notes to the mailings of her quarterly newsletter for clients. "It makes it easier for them to pick up the phone and tell you what they're really worried about. If we don't hear from them, we pick up the phone," she says.
"We're taking the time to acknowledge that these are harder times than we're used to. I don't have a fire drill. It's designed to let the client open up. Some are concerned about job loss, some about war, some that the stock market will never turn around. I tell them we'll be there for them through thick and thin."
Hogan also uses the meetings as a reality check to help clients who need to start thinking about lifestyle choices and tradeoffs, which for some might mean spending less and saving more. "We started preparing them a while ago by telling them how aberrant the bull market was. If we're doing our job, they were ready for this."