It's difficult to imagine this scenario now: Last spring, a Tiburon CEO Summit in lower Manhattan featured a panel called "Ask the Consumers," where a group of model investors talked about how much they expected in annual investment performance from their financial advisors. All of them said they'd be happy with 8% or so. That number got a few chuckles from the audience of professionals.

That story seems morbidly funny now after September 2008, when Wall Street looks like an apocalyptic nightmare version of its former self-when all of the giant independent investment banks have either been folded, sold, bankrupted or restructured-undone with pens.

The market turmoil of 2008-the fire sale of Bear Stearns, the meltdown of Lehman Brothers, the metamorphosis of Goldman Sachs and Morgan Stanley into regulated banks, and, most horribly, the erasure of some 45% of the value of the Dow Jones and S&P 500 indexes in just 12 months-would understandably make investors panicky, especially those who were just in sight of retirement, and want to move everything to cash at exactly the wrong time. That is, if they aren't simply in shock.

"It's starting to sink in that these long-run returns that people are expecting simply aren't materializing and it's going to take us a few years to get out of this hole," says Michael Brown, a partner at Seattle firm ClearPoint Financial, which manages retirement plans. "Everybody throughout the whole spectrum is starting to figure out that the returns that we've been running and counting on and running projections on have just simply not materialized.

It's not just a market dip. This appears to be the end of an era where Wall Street is not ever going to be the same for a long, long time. The profits that have been generated in the markets-all the gas has been taken out of the engine."

But one man's fear is another's opportunity, especially a financial advisor's opportunity as these panicking investors run to the phones. Many planners are on the phones with their clients already making pre-emptive calls to soothe the worried hearts of their clients.

Advisor Bedda D'Angelo of Fiduciary Solutions Inc. in Durham, N.C., has never really taken more than a couple of calls a day from new business prospects looking to kick the tires and ask her about her services. But on the week of September 19, she got 56 in one day. It tapered off after that, but she was still getting 10 or 12 a day by mid-October.

When clients do call advisors, they're generally asking "Why is this happening?" and "When do I get out?"

"My response to the first question is very complicated," says CFP Michael Kresh of M.D. Kresh Financial Services Inc. in Islandia, New York on Long Island. "We're only just beginning to understand everything that has gone wrong in the financial services industry-the lack of oversight, lack of regulation, high leverage, esoteric products. People in many positions who created these products didn't necessarily understand what it was they were creating. Clients ask why things are falling down so quickly and I said in many cases the situation has nothing to do with the intrinsic value anymore; it's the fact that companies are being forced to mark to market. And there is no market."

To explain the market to clients, he asks them to imagine what would happen if they were forced to sell their house in 24 hours: A home worth half a million dollars would suddenly plummet to about $100K. And that's just what's going on with the stock market.

"When companies are forced to mark to market, they may be pricing securities on their books well below their value because there is no actively trading market, so they price it based on an irrational sale-i.e., the same kind of consequence of having to sell your house in 24 hours."

One of the bigger problems in this particular market, where every type of security seems to be so utterly, horribly correlated-marching in lockstep right off the cliff-is knowing what positions you can even evacuate to. Is your cash even cash?

D'Angelo had a client who was the CFO at a university, and wanted to retreat from her holdings and go to money markets funds-things D'Angelo pointed out were backed by pieces of commercial paper with now-dubious sounding names on them like Fannie Mae, Freddie Mac and AIG. This point was reinforced when the Reserve Fund, the nation's oldest money market fund, saw its largest fund "break the buck," and fall to less than a dollar per share in net asset value, one of the rare occasions that a money market fund lost money and was soon forced to freeze its accounts to forestall redemptions.
This cataclysm reverberated in the university endowment world and reframed the debate for the CFO client, who thanked her advisor for the sapient advice and stayed put in her investments rather than lock in losses.

"A lot of people don't realize money markets are short-term securities," D'Angelo says. "My client knows it, but she wasn't thinking about it when she was thinking about her money. The minute I brought it to her attention, she put her professional cap back on. They sometimes forget how smart they are and you have to go back and make them remember how smart they are."

Kresh has also gotten calls from people insisting he sell, even if there isn't anywhere good to go. "Where can we put your money?" he asks. "The two-year Treasury is paying 1.5%. My typical client through this week is down by a little more than half the market-21% to 22%-so if we move out of the market now and move into Treasurys at 1.5%, it's going to take 12 to 15 years to break even. So I get a CD at 4%. Then it's five to six years to break even."

You might not lose money with these, he says, but you won't get to jump back in and participate in the recovery either.

He points to the rally on October 13 of this year. "Here you had a day where the market earned four years' worth of return on your CD in one day. Do you really want to put your money in a place where you may be forfeiting years' worth of return in days' worth of market exposure?"

Richard Holbrook opened his firm Holbrook Global Strategies in Palo Alto, Calif., five years ago, and until June he says he was always fully invested. The current market, however, made him think twice, and he started to revert to cash positions during the summer that have now reached 80% to 85% of his equity portfolios. The prescient move has protected his clients and kept them happy.

"I do think there will be a snap back in that there always is," he says. "Right now I'm trying to figure out when that will happen. Nobody knows that."
The most immediate fallout from this is that many clients who might have been thinking of retiring will have to put off those plans, or in the worst cases, sell expensive homes for more liquidity. At best, they'll have to tighten belts and put off that trip around the world.

"I think all your pre-retirees that aren't high in the seven figures-who have one million or two million who is getting ready to retire-is going to have to reconsider unless there is a huge bounce-back," says Matthew Berquist, a CFP licensee and vice president at Intrepid Capital Management in Jacksonville Beach, Fla. "I just think anybody in this market that's got even 50% equity exposure is going to have a hard time retiring."

Pollyanna Time?
Those who panic in this environment will lose, advisors say, and if anything, now's the time for advisors and investors both to sniff out opportunities.

"This is probably the greatest business-generating opportunity I've seen in my career," says CFP licensee Glenda D. Kemple of Kemple Capital, an upstart shop in Dallas. Kemple left an old firm and hung out her own shingle four and a half years ago and has now built her AUM to its current $50 million, a lot of it this year due to clients seeking her help amid the current market woes. "This year so far we've added 12 new fee clients and $8 million in new assets under management," she says. "We will probably add at least another eight by the end of the year."

Kresh, meanwhile, says he got five new clients in three weeks after the September turmoil-almost half of what he typically gets in an entire year. He says that once clients get past the fear about the market plummeting and start to see that things are undervalued, he can get them thinking about opportunity and point to such market stalwarts as Warren Buffett who are also buying cheap and not dear.

Kresh usually gives presentations about the market to corporations and other groups, but where before he had to pitch himself, nowadays people are looking for him. "I'm getting unsolicited speaking engagements, which is rare. Only when people are scared are they going to be reaching for a speaker."

To Kemple, this is the time to aggressively market, and she's been sending out pamphlets and also inviting people to seminars to talk about the slaughter in the markets. Her clients also appreciate the fact that she's calling them first. "With new money, this is an opportunity to absolutely get wealthy," she says, "I believe fortunes will be made in the next few years."

Stephen Barnes, a CFP designee with Barnes Investment Advisory in Phoenix, says that he's sought alternative ways to get his clients information and get them away from the breathless Sturm und Drang they get on television-the "CNBC factor," he calls it, where a myopic look at today's market moves alone can give people ulcers. Even if the clients know not to watch, where are they supposed to go for the right information?

"We've set up a blog to communicate with clients en masse rather than having to make 100 phone calls at the same time," he says. "And our advice is to turn off the TV."

The opportunity for fee-based advisors now is particularly evident, because do-it-yourself investors and clients coming from the wirehouse channel have become exasperated.

According to Brown, it's not just the fact that Wall Street exploded that's got these investors angry. It's the way it exploded. The fall of the investment banks has left them extremely skeptical. (How could an investment bank take care of you, so goes the reasoning, if it couldn't take care of itself?)
"I think it's really changing the mentality of our clients," says Brown, who works with both execs and employees as a manager of retirement plans. "This is the second time in a decade that they've been significantly burned by a bubble and it's causing them to rethink what they've been doing."

The skepticism means clients are more willing to listen to reason, too, he says. "Nobody takes 10%-12% [annual returns] at face value anymore.

[Starting from 1998,] if you look at the returns that the market would have to generate in the next five to ten years in order to get us back to that 10% rate of return, we'd have to crank out 20% a year."

This isn't great news for a client. But at the same time, many of them are more ready than ever to listen. Kresh says those who have come to him from other advisors aren't coming from other fee planners but from wirehouses and transaction-oriented brokers. And they're saying the same things:
"It's difficult to reach my broker. And I can't get advice. Or the stuff that he sold me recently isn't working and he has no ability to communicate to me why I should own it. It's a very similar pattern. Whoever is on the other side of the table isn't hand-holding anymore. And that leads people to be frustrated along with being scared."

Exhaustion
In this kind of market, you're a therapist as much as an advisor, and sometimes the stress can be traumatic, especially if you're fielding calls from clients morning, noon and night and on the weekends-people who would insinuate themselves into your evening dinner and kids' soccer games to talk about why their investments have gone to hell.

"It's been overwhelming and exhausting in the sense that you spend a lot more time reassuring people," says Rita Cheng, CFP, an advisor with Ameriprise Financial in Bethesda, Md. "But that's your job. You feel like you may not be as efficient as you have wanted to be, so you give yourself a to-do list and you try to hold yourself accountable and do everything on that list. You can't beat yourself up. ... If you're talking to clients, that's a good thing."

If Cheng sounds like a mom, she is one. She tells everybody to remember to get rest and eat and preserve energy (even journalists) and you get the sense she's talking to herself as much as anybody else.

Another stress point for advisors is the peculiar and discontinuous-not to say schizophrenic-nature of the current market. "It's sucked a lot of time away from what we consider our normal activities-the extent to which policymakers have hijacked the investment process," says Barnes. "Basically, the market is functioning off what policymakers are doing. They've made it hard to make strategic decisions in regard to portfolios. So I've spent an inordinate amount of time trying to figure out what I should do differently."

"When the market does recover, it tends to recover in bursts, and people who wait for the recovery before they get back in consistently miss the market entirely," said Kresh on October 24, when the market suffered another of its many freefalls this year. "When this morning came around, even I challenged my own recommendations because the market looked like it could have had a 10% or more correction. And it's hard to justify to somebody holding [their investments when] the bottom is still as shaky as it is. I personally drew comfort from the fact that the market, although down 300 points today, continually keeps bouncing against Dow 8,200 and we might have established the floor."