Yankwitt typically sends out quarterly statements detailing all of a client's accounts with his firm, rather than a more traditional separate account statement, so the clients can see how their portfolios are doing as a whole rather than focus on their best- or worst-performing ones. The phone call he got in his car prompted him to send out a special aggregate statement accompanied by a letter to clients after a particularly tough month for the stock market. "The letter basically said that, in light of recent market volatility, I felt it was appropriate to send a snapshot of how their accounts did and to tell them that if they wanted to communicate about anything, to give me a call," he says. "I think it's important to provide a more rational voice than the hysterical guy on television." A couple of clients responded with appreciation for the unscheduled update, and a few said they would be interested in stock market "bargains" should the opportunities present themselves.
Millionaire clients, who have often taken risks to get where they are, sometimes bring that mindset to the investment table, says Yankwitt. "I ask them if they would be prepared to lose 10% of their portfolios in a given year. If they say they would, I talk to them about how much that represents in dollar terms, which often causes them to step back. These people are already where they want to be financially, so I view my job as protecting their wealth. There's no need to shoot for heroic returns."
Norm Mindel, a financial advisor for Genworth Financial, says that one of his clients wanted to put his portfolio into cash during the credit crunch earlier this year. In situations like that, he says, "I sit down and point out that I could put them into money market funds, but at today's rates they would lose money to inflation and taxes. The other choice is to take some risk and get through these markets."
He also tries to take a proactive approach by calling all of his 130 clients every quarter, holding an annual client appreciation dinner and sending out a quarterly newsletter. (The last issue pointed out that the stock market rose during five of the last ten recessions.) And branching into areas beyond money management, such as estate planning, helps shift the focus away from day-to-day market volatility, cement relationships during tough times and generate referrals. "In an age of instantaneous information where everyone is focused on the next 24 hours, there has to be someone there to put things into perspective," he says.
Some advisors have made fairly sweeping changes in response to volatile markets. At Financial Advantage in Columbia, Md., senior advisor Lyn Dippel introduced a major shift by phasing out her traditional buy-and-hold stocks and bond strategy with a more active one that emphasizes capital preservation can keep portfolios in positive territory under a variety of market conditions. She instituted the change in response to heightened market volatility. Also, her clients, who are mainly retirees or individuals nearing retirement that have investment portfolios in the $1 million to $7 million range, wanted to preserve what they have accumulated rather than aggressively grow their portfolios.
Dippel shoots for a 7% absolute return, regardless of market conditions. "If the stock market is up 15% to 20% in a given year, we may be up about 10%. If it's in negative territory we may be up 5% or so." Her clients, she says, are happy to sacrifice shoot-the-lights-out returns for greater consistency.
She no longer seeks broad market exposure through ETFs or mutual funds because she believes stocks as a whole are overvalued and that broad investment classes such as U.S. and international stocks, small caps and large caps move in lockstep. Her bond investments have been largely replaced by cash investments and high-dividend stocks, and she uses more targeted opportunistic investments such as individual stocks and sector funds, as well as hedge investments such as inverse-index funds.
She trades more frequently to take advantage of market volatility and to make money in sideways markets, and she communicates with clients about what she's doing via e-mail "investment alerts" that include a link to a portion of her Web site that briefly explains why she has executed a particular trade. "It helps to settle their minds about what I'm doing and lets them know that I'm staying on top of things," she says.