While there are many similarities and consistencies, each bear market is different too. In my last column, “It May Be Helpful To Take Notes During The Bear Market,” I shared some of my observations about the Coronacrash and past bear markets. I have a few more today.

We have had some clients concerned about the markets and a handful that were approaching panic. That didn’t surprise us. The unprecedented shutdown of businesses and economic activity coupled with a spectacular decent in stock prices was bound to disturb a few people enough for them to question if they could handle what could come.

What did surprise us was that the nearly panicked were greatly outnumbered by the number of clients that were anxious to rebalance. Their urgency to buy was a stark contrast to the resistance to rebalancing we experienced during the 2008 financial crisis. That resistance has been a significant driver of our messaging since 2009. We have been regularly reminding clients that market drops are a frequent occurrence, can happen at any time and that when drops are severe enough, we will be looking to rebalance, not sit on the sidelines.

While I believe our messaging contributed to the increase in buyers within our clientele, I think another influence was in play that has nothing to do with us. Client reactions to this Covid-19-driven decline remind me much more of the 2000-2002 bear market than 2008-2009.

Given how odd these times are this may seem strange at first reading, but the nature of this crisis is to a degree, relatable. For the most part, people understand why the market would react negatively. The need to flatten the curve forces business to curtail operations or shut down and that can’t be good for finances. That makes sense to people just as the bursting of the tech-stock bubble and the reaction to the terror attacks of September 11, 2001 made sense on some level to them. These are events that should cause a reaction.

More importantly, in both cases, people could envision a point in the future at which we were past the problem. No one knew then and no one knows now how long it will take, but most people seem to have faith that we will get through the crisis in time. In 2008, that was not the case.

The financial crisis was a mystery to most clients who had an entirely new language of terms thrown at them like “mark-to-market accounting” and “collateralized debt obligations.” I had a client call me in early 2009 to ask me what I thought about the TED spread.

I responded, “Bob, I hate to answer a question with a question, but do you even know what a TED spread is?”

He replied, “No, but the guy on TV says its critical if we are going to get out of this depression.”

I haven’t had a conversation anything like that this time. Since the 2008 financial crisis, we have incorporated education about the financial media into our processes and messaging. For several years now, our firm’s motto has been “A sanctuary from the noise”; I think it has helped a lot during this mess.

Just as it did during the Great Recession, the time and effort taken to collaborate with our clients to create a proper comprehensive financial plan is proving its worth. Good planning results in an understanding by clients of why they need to do what they need to do with their money. They aren’t invested just for fun. They have goals and the portfolio structure should support those goals. It is far easier to get clients back in touch with their rational side when the portfolio design, implementation and management align with the financial plan and are memorialized in an investment policy statement. The client and their planner have a written record, created under less stressful conditions, of what they decided they would do when the bear growled.

Planning shows its worth in other realms too, especially tax planning. During bear markets, tax-loss harvesting gets a lot of attention. Rightly so, but clients shouldn’t do these things just because their equity holdings are down. They should consider the long-run ramifications.

Loss harvesting makes the most sense when the losses can offset high tax rates. It is not good for everyone. It is over-promoted so frequently, I included it in a previous column of “overhyped strategies.” I can almost guarantee that in the coming months, we will see prospective clients with loss-harvesting trades even though their incomes are low enough to pay a tax rate of zero on gains. This happens a lot with management that relies too much on automation. Many of them will literally get no benefit from losses. We will also see many who used losses to offset ordinary income at 12% without considering the future ramifications.

Good planning dictates we consider not just the effect on this year’s taxes but future years as well. A loss harvest that saves $360 this year (12% ordinary rate X $3,000 max loss against income) is lovely, but if income is expected to increase, they might want to pass on the $360 and keep the higher basis of the position they were going to use for loss harvesting. In fact, if they do have positions showing unrealized gains now, gain harvesting at the zero percent rate might make more sense than loss harvesting. 

In this Coronacrash, the high volatility makes being out of a holding or doubling up on one for 31 days to avoid wash sale issues tricky. One risks a spike in price that can significantly offset the value of the tax loss. Swapping to a similar holding immediately seems more popular. Swapping, however, doesn’t get around the issue of basis reset.

Loss harvesting is an important short-term tactic, but it must be considered as part of a long-term strategic plan. Taking losses now means bigger gains later. In general, the higher the current bracket relative to the anticipated future bracket, the more likely the tax-loss-harvesting tactic will pay off.

On the practice management side, my inbox and social media feeds are full of pleas to ramp up marketing and offers from consultants to help me do just that. Most of them say these unprecedented times present the best opportunity to pick up new clients in a long time and that other advisors they have helped are bringing in new clients in droves.

In past declines I got similar messages, though through different formats. It is true that these are unprecedented times. I think the criticism that many advisors are not good marketers and would benefit from professional help is also true. Nonetheless, I am not buying the pitch. I’m sure there are some advisors that are bringing in more new business than usual and that some of these marketing firms are helping make that happen. I’m happy for all of them, but I suspect those advisors are the exception not the rule.

I know a lot of financial advisors. Whether they use marketing firms or not, the majority of them describe the current environment for new client acquisition as slow. This has happened in every big decline I’ve experienced as well. If the pattern holds, growth will ramp up as people realize the light at the end of the tunnel is an exit. Right now, many fear it is a train.

I think there are a few reasons for the slowdown. First and foremost, most people experienced a sense of shock at how quickly the world shut down and how fast the markets dove. It is a normal reaction to be cautious in such times. Scary times make moving seem riskier.

Those that do want to change have the perpetual problem of figuring out where to go. With the sheer volume of “come work with us” messaging, it can be a daunting challenge to find an advisor in calmer times let alone in a volatile period with great uncertainty like this.   

That said, the biggest factor that slows the forging of new relationships is exactly the behavior that fuels it later. Professional financial planners turn their attention more fully on their clients than on prospective clients. This is smart, proper and the duty of a fiduciary.

Eventually, as things get less bizarre, those that were not served well will start to look around so that they don’t experience as much trauma in the next crisis. A well-served clientele will share their good experiences with their friends, helping them find someone good, and planners’ phones will ring more.

In a sense, the marketers are right. What you do now is critical, not just to the future of your clients’ finances but the future of your firm as well.

Dan Moisand, CFP, has been featured as one of America’s top independent financial planners by Financial Advisor, Financial Planning, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines. He practices in Melbourne, Fla.  You can reach him at [email protected].