Clients will often tell you something they think has happened to their portfolio. For example, one of my clients had a small portion of his portfolio invested in commodities. One position, which represented a bit over 1% of his total portfolio, was down significantly last year. The small loss was more than offset by gains in other alternative vehicles, and overall, he was down less than half the S&P 500 last year as a result of the diversification we had built into his portfolio. Yet he could not seem to get his mind off that one commodity reversal. He agonized over it, even though it was of little consequence financially.
My phone call gave him the chance to express his angst and also gave me the opportunity to reassure him of the overall health of his portfolio and that the loss was more than compensated for by his other holdings.
Getting him to look at the whole picture was the key, of course, but had I not been in touch, I never would have known how concerned he was over that one small facet of his asset allocation. In the current economic environment, I believe our role as advisors is to help investors avoid hyper-analysis of minor portfolio elements and instead concentrate on overall results. For my distressed client, diffusing that disproportionate anxiety and working through this issue has strengthened our relationship and helped him focus less on individual pieces of the puzzle and more on the big picture.
What Can We Do?
In our practice, we've implemented three regimens to help provide support and guidance for our clients:
Market Updates. As opposed to having updates dictated by the calendar or a pre-arranged schedule, we issue updates whenever something occurs that may have an impact on client portfolios or investment strategies.
The client response to these ongoing updates has been positive to the extent we've received numerous compliments and requests to "keep them coming." The bulletins have also promoted two-way communications with clients, who often share their thoughts or concerns about an ancillary topic, something we might never have known they were thinking about. The conversations give us the opportunity to remind clients of the strategic adjustments made over the past year and the impact of those modifications. Knowing that we are taking action in response to the changing economic environment helps gives them peace of mind.
Strategic Portfolio Adjustments. Traditional "buy & hold" tactics that once may have made sense have given way to a more proactive approach of looking for market opportunities and making appropriate portfolio adjustments.
In conversations with other advisors, I find many are hesitant to alter their long-term, buy-and-hold asset allocations. But at a time when equity values continue to plummet while opportunities in other sectors emerge, advisors must be willing to abandon some cherished beliefs and traditional approaches in favor of a more active strategy that helps protect HNWs from falling below their safety levels.
Risk Profile Reassessment. Throughout this crisis, we've been meeting regularly with our clients to reevaluate their financial objectives and risk parameters. In essence, we are starting over with each client, going back and asking the same questions we did when they first hired us.