So who is moving clients to cash?

59 replies [Last post]
Gordon Gekko's picture
Offline
Joined: 2007-07-08

After the "worst June since the Great Depression", who is inclined to move clients into "safe" stuff now? I am guessing when June statements hit, this conversation might occur once or twice. I read a good analogy to combat that request: do you want to eat better or sleep better?

troll's picture
Offline
Joined: 2004-11-29

I dont know, an neither does anyone else, how far down we go from here. But afte the worst June ever, i suspect we are at least due for a decent bounce. If I have clients who are properly allocated, i do nothing. And keep them focused on what we are trying to accomplish, and the time they have to accomplish it.
However, I do have clients who i have to admit, in hindsight, are not properly allocated. Folks in their 50's who are 100% equities. They are young 50's and accustomed to being aggessive in everything they do in life.  (I'm one of them). Not alot of them, just a few, but enough to make me nervous. With those folks, i look fo the bounce to rebalance to an allocation that they can live with thru good markets and bad. My Investment Philosophy is you develop a broad allocation (stocks bonds cash) that the client can live with thru good and bad, and you only change it in reaction to changes in their life, not the markets, but you do make tactical changes within those broad categories. I wouldnt do it here. (i know, i'm taking a riskby waiting. But I'm taking a risk either way)
 
Here's the other question - there are a few places (sectors) that are making money in this market. They seem long in tooth, and we all know that when these things end (like enegy, commodities, etc), they end very very badly. So when you are allocating money to the equity side of the equiation, whether its stocks, etf's etc., are you overweighting to that area, or are you cautious and just covering your style boxes. (Covering style boxes isnt working and i suspect wont work for a while)
And what about International - what is it 5 years as the number one asset class?
opinions, investment philosophies, novel new approaches, suicide?
 
 
 

Gordon Gekko's picture
Offline
Joined: 2007-07-08

I have added some (not a ton) of the US and Candian Energy Trusts paying 10% divys. I have bought a few cds for retirees. Other than that, I am hoping for that bounce and trying to keep people to stay the course. I haven't had a ton of incomig calls which is odd. I have called people ahead of time to tell them how cruddy the market is and not to freak out.

Gordon Gekko's picture
Offline
Joined: 2007-07-08

If your book is like mine, most of my clients are over age 60 and taking some sort of distribution for their accounts. What used to work (CAIBX, Franklin Founding Funds, just about any "balanced" fund) is down 8-10% and bond funds are hovering anwhere from +/- 2% ytd. The market sucks, CNBC is telling everyone how sucky it is and how oil goes up $2 a day, and people are mostly just dazed and confused, not sure what to do. I would expect a bounce but not off to the races. I think oil has to come down and the financials have to stablize. Until then, I am glad I own WASCX.

Gordon Gekko's picture
Offline
Joined: 2007-07-08

Then I assume you have a lot of clients still working and contributing to their accounts. They have very little to gripe about.  Anyone retired and taking distributions has every reason to be concerend.  This is one more fund I've been dabbling with:
 
http://www.rydexfunds.com/ourproducts/Productdetail.htm?csp=78356A525
 
I hate the limited liquidity and cost of most managed futures so this is a simpler way to do it.

Broker24's picture
Offline
Joined: 2006-10-12

It's a tough market right now, as there is virtually no asset class that is really up this year (and not that anyone could have guessed in advance which one it would be), and even very diversified, conservative portfolios are down. But I think moving into cash NOW is probably the worst thing you could do. Ride it down, then miss the upswing. Probably not a smart move. We have to suck it up and face out clients. JMHO.

Gordon Gekko's picture
Offline
Joined: 2007-07-08

Seeing that we are paid to have an opinion on the unknown, I would assume there might be another 5% to the downside which we could obviously hit real quick. The clients who ignore the noise will end up doing better in the long haul.

deekay's picture
Offline
Joined: 2007-05-15

Broker24 wrote:It's a tough market right now, as there is virtually no asset class that is really up this year (and not that anyone could have guessed in advance which one it would be), and even very diversified, conservative portfolios are down. But I think moving into cash NOW is probably the worst thing you could do. Ride it down, then miss the upswing. Probably not a smart move. We have to suck it up and face out clients. JMHO.
 
My clients who own WL insurance show gains in their policy this year.  And they will in years to come.  Food for thought from an investing point of view and a long-term planning point of view.
 
And I agree, those that should still be in the market should stay in the market.  The folks that are freaking out shouldn't have been in the market in the first place. 
 
 

Gordon Gekko's picture
Offline
Joined: 2007-07-08

VA's with GMIB's have something that has increased as well. I am sure the sales of those will go through the roof until the market turns around.

Gordon Gekko's picture
Offline
Joined: 2007-07-08

I use VA's as a hedge, see how things are going in the four years it takes to get beyond surrender charges and assess the landscape. Even the old antiquated riders (Principal First) give clients some degree of comfort if you remind them what they own.

deekay's picture
Offline
Joined: 2007-05-15

Gordon Gekko wrote:VA's with GMIB's have something that has increased as well. I am sure the sales of those will go through the roof until the market turns around.

 
Yep.  And VAs with GMABs for those still accumulating for retirement.
And something as simple as a SPIA for some of a client's retirement assets can go a long way to calming fears when the market's in the shitter.  Combine it with some WL and you've set your client up for an income they won't outlive while maintaining a legacy for their heirs.

Gordon Gekko's picture
Offline
Joined: 2007-07-08

I have been on another thread talking about erasing June from our memory banks. It's amazing how many fcs claim they've been bearish on the market for years and have all their clients in all sorts of fancy hedged products. I think most fcs, as evidenced by the trillion dollars they manage, have most clients in products like American Funds and are sucking wind for the last year.

doberman's picture
Offline
Joined: 2005-02-22

I'm waiting for the other shoe to drop. That "shoe" is the insurance industry.
 
I find it hard to believe that the insurance industry (typically large investors in mortgage securities) has escaped unscathed from the subprime mess. Whereas banks, hedge funds, broker/dealers, individual investors, etc. have caught h*ll from their mortgage security holdings. Somebody is hiding something and it will eventually come out in the wash. And I believe "fixed annuity" investors will be the hardest hit. I wouldn't put anyone in a fixed annuity, since I question the financial viability of the insurance industry, as a whole. Don't quote me their current ratings, since we all know what a bad joke the ratings are.
 
VA's might be ok, as their underlying holdings are mutual funds. However, their income and principal guarantees may disappear as their financial status implodes.
 
Someone tell me where I'm wrong in my logic, unless you're counting on some future government bailout at the first sign of trouble.
 
You may argue that you can't accurately price mortgage securities in this market. You may be right or you may be wrong. But that argument is premised on the belief that the mortgage security market will eventually get back to "normal". What is "normal" and when will it return? Maybe the market is "normal" now. 
 
The ultimate point I'm trying to get across is that maybe we should be having this conversation with FA & VA prospects. It might just keep you out of arbitration, later. Plus, no one else is discussing this with my prospects. The same may be true for your prospects, as well.
 
 

noggin's picture
Offline
Joined: 2004-11-30

Global bond funds are up. You can even sell some at Jones but the wholesalers can't tell you about them unless you ask....

troll's picture
Offline
Joined: 2004-11-29

I have added some (not a ton) of the US and Candian Energy Trusts paying 10% divys. I have bought a few cds for retirees. Other than that, I am hoping for that bounce and trying to keep people to stay the course. I haven't had a ton of incomig calls which is odd. I have called people ahead of time to tell them how cruddy the market is and not to freak out.
 
Gordon -
Most important, whether clients are calling you all freaked out or not, is to call them
1. before they call you
2. more important, before they get their June statements!
 
I spent the day today, printing out Portfolio Reviews for all of my A and B clients, and I am calling them all Monday and Tuesday.

deekay's picture
Offline
Joined: 2007-05-15

An interesting note, doberman.  Not all insurance companies are created equal.  In fact, the insurance company I send most of my life and disability business to had a due diligence meeting this past Thursday.  The national sales manager of the annuity division closed out the meeting.  He addressed the subprime mess and remarked how similar it was to the junk bond scandal in the 90s (the one that brought down Executive Life).  He had stats that showed that my primary carrier has $5 million in MBSs in the general investment account.  None of them are in signs of default.  Even if they were all to go belly-up, it will not affect a $60 BILLION account.  Long story short, I'm glad that I'm at where I'm at.
 
I would be concerned with some insurance companies (mostly the stock insurance companies) who got caught up in this stuff.  You may very well see big blowups in the near future.  However, if there is one industry that would hold up one of their own in the event of a potential failure, it's the life insurance industry.  The entire industry is backed up by a promise to pay.  If one company can't pay, it goes bad for every company involved. 

troll's picture
Offline
Joined: 2004-11-29

Prato, you bring up an interesting point: I think many people are finding out just how risk tolerant they are NOT this year.  This is something I've been conscious of since the start, and so far I've been spot-on with all of my clients...I'm seeing essentially zero unrest (and actually, my portfolios are pretty solid relative to the market). 
 
If you do have clients that are mis-allocated based on their age, I wouldn't reallocate them now if they have 7-10 years until retirement.  e.g. I wouldn't move money from severely beaten up asset classes to less beaten up asset classes right now.  I would take this opportunity to meet with those clients and discuss whether or not they feel their risk tolerance has changed.  If so, explain to them why you aren't going to move them now, but you plan to do so in the future. 
 
As for all of the younger people, I think there are tremendous buying opportunities in this market, regardless of what the "sky is falling" folks are saying.  Buying when blood is in the streets has been a prudent move historically, and this time is no different.
 
Ice, I agree on all points.
Cant say however, that I am not scared that we might not get that bounce till we see further declines.

troll's picture
Offline
Joined: 2004-11-29

Gordon Gekko wrote:Then I assume you have a lot of clients still working and contributing to their accounts. They have very little to gripe about.  Anyone retired and taking distributions has every reason to be concerend.  This is one more fund I've been dabbling with:
 
http://www.rydexfunds.com/ourproducts/Productdetail.htm?csp=78356A525
 
I hate the limited liquidity and cost of most managed futures so this is a simpler way to do it.
 
Rydex Mgd Futures is a good fund for this environment. Add it to a core of WASAX and MDLOX, and you've got low corellation to the market. Question - when do you go back to more traditional funds? Because in a bull market you'll underperform. Especially if the bull market is sparked by a rising dollar and falling commodities and Intl markets.

troll's picture
Offline
Joined: 2004-11-29

PSS - We aren't paid to have an opinion about the unknown, we are paid to have a plan for the unknown.
 
Gordon - what an awesome quote. I am emailing to my office email addess.

snaggletooth's picture
Offline
Joined: 2007-07-13

Great thread guys!  I am worried for my pre-retirement clients.  I have been allocating about 30% to VA's which have their guarantees for the long run.  I have mutual funds for the intermediate-long term.  Some of the value funds have gone down of course.  Prato, just like you, I'm waiting for a bounce to reallocate to more of a market neutral fund. 
 
Long term clients, I'm telling to buy more now.  But the ones that are 1-2 years from retirement worry about a market like this.  I have kept a decent allocation in cash or cash equivalent, or preferred stock to get income.
 
At some point the market will turn around.  We just don't know when.  I believe we are paid to not sell out and act like average investors, but it is tough to "stay the course" and wait for the bounce when we are just bleeding and bleeding. 
 
I've been drinking a little bit today, so don't quote me on this.  But for my pre-retiremnt clients, I feel like the market has done about -10 to 12% YTD, and their accounts are down about 4-5%.  So it's not terrible,, but come on, this shit has to end sometime.
 
How do you spell silo?  I don't know, but I take that approach.  We'll see.

Broker24's picture
Offline
Joined: 2006-10-12

noggin wrote: Global bond funds are up. You can even sell some at Jones but the wholesalers can't tell you about them unless you ask....

AF CWBF and Templeton Global Bond are talked about all the time. And they are part of certain recommended portfolios. Not sure where you are getting your info.

However, nobody would have been allocating a substantial portion to that class, nor would anyone have known 9 months ago that this would have been one of the few classes holding up (regardless of what people may say NOW).

snaggletooth's picture
Offline
Joined: 2007-07-13

iceco1d wrote:pratoman wrote:
PSS - We aren't paid to have an opinion about the unknown, we are paid to have a plan for the unknown.
 
Gordon - what an awesome quote. I am emailing to my office email addess.
 
 

WTF Pratoman!  That's MY quote?!?!??!  
 
Just joking around of course...but it is my quote! 

 
I'm taking that quote too!  Thanks Gordon!!! 
 
Kidding, Ice Man.  Where's Maverick and Goose and Viper?

troll's picture
Offline
Joined: 2004-11-29

Going to cash now? NO.  Reallocated most aggressive accounts in early January when relative strength changed, put some money back into the market in mid March.  Typical conservative client down about 2.5%, aggressive clients down about 6%.  Very few complaints.

MLurative's picture
Offline
Joined: 2008-01-05

Good thread guys. 
 
I'm using a lot of rental REITs right now.  The sub-prime mess has secured that market for at least the next 10 years.

troll's picture
Offline
Joined: 2004-11-29

iceco1d wrote:pratoman wrote:
PSS - We aren't paid to have an opinion about the unknown, we are paid to have a plan for the unknown.
 
Gordon - what an awesome quote. I am emailing to my office email addess.
 
 

WTF Pratoman!  That's MY quote?!?!??!  
 
Just joking around of course...but it is my quote! 

Sorry Ice, my bad! It IS a geat quote.

troll's picture
Offline
Joined: 2004-11-29

MLurative wrote:Good thread guys. 
 
I'm using a lot of rental REITs right now.  The sub-prime mess has secured that market for at least the next 10 years.
Can you name some names ML?

Gordon Gekko's picture
Offline
Joined: 2007-07-08

In regards to VA's, I know Met is a wildly popular one in our system. Maybe it's the Snoopy thing but clients seem to feel comfortable. REITS are interesting as they were outperforming prior to the latest downturn. AWP is a global reit, unleveraged, paying over 13% and it pays monthly. This is a very volatile cef but the income is great.
The problem my clients have is the let's say 4-6% hit to their investments plus the 4-6% annualized withdrawal they are taking.
 

snaggletooth's picture
Offline
Joined: 2007-07-13

One thing I did do earlier this year was move intermediate term cash into preferreds instead of putting it into mutual funds.  They are paying between 7.5%-8% and most are callable in 4-5 years.  Right now they are down about 5%, but the income is still coming into the accounts every month.
 
Originally I bought them because I didn't want to put as much of the clients' money into mutual funds and wanted better yields than CDs.  I thought I might have held on to them for 1 year, but now 4-5 years at that yield isn't so bad.  I would really hope the economy gets better by then.
 
I don't know how much worse it will get, but it just feels too late to move to cash.

Gordon Gekko's picture
Offline
Joined: 2007-07-08

I bought and have since sold those preferreds. They should do ok, assuming we don't have a total financial meltdown.

snaggletooth's picture
Offline
Joined: 2007-07-13

With the IndyMac news, FDIC, C, MER, WB, WM, and other awesome news out there, is anyone that was just sitting tight now thinking of moving to cash, or something else?

BullBroker's picture
Offline
Joined: 2006-12-26

Not saying that I advocate going 100% cash at all, but I bet the clients of those "cookie cutter tactical programs" in all money markets paying 2.25% getting charges a 2% fee are much less pissed off.  Than the clients who's shmuck advisor stuck them in a Vanguard Index fund touting the low .15% fee now down -15.09%.
 
Cookie Cutter tactical:    2.25% money market  - 2.00% fee = Total before Tax return of .25%
 
 
Shmuck Advisor Vanguard Index plan:  -15.09% return  -  .15% fee = Total before Tax return of =   -15.24%
 
 
I hope the majority of the advisors on this board are somewhere in between these two examples. 
 
 
 
Not saying just saying, you have to look at all things relative

snaggletooth's picture
Offline
Joined: 2007-07-13

BullBroker wrote:

Not saying that I advocate going 100% cash at all, but I bet the clients of those "cookie cutter tactical programs" in all money markets paying 2.25% getting charges a 2% fee are much less pissed off.  Than the clients who's shmuck advisor stuck them in a Vanguard Index fund touting the low .15% fee now down -15.09%.
 
Cookie Cutter tactical:    2.25% money market  - 2.00% fee = Total before Tax return of .25%
 
Shmuck Advisor Vanguard Index plan:  -15.09% return  -  .15% fee = Total before Tax return of =   -15.24%
 
I hope the majority of the advisors on this board are somewhere in between these two examples. 
 
Not saying just saying, you have to look at all things relative
 
Good point Bull!  Yes, I'm inbetween that.  That's the thing about fees and costs of things.  From my VA wholesaler:  Costs are only an issue in the absence of value.  Great line.
 
Can you imagine this conversation:  Client:  We're down 15 effin %!  Advisor:  Yeah, but we're only paying 15 bps!
 
It kind of makes me want to call all the DIY indexers and ask them how their low expense funds are doing.
 
Blackrock has a great brochure for their Global Allocation fund on their website.  Basically, we can pay little to ride the market up and down and up and down, or we can pay a little more to lose less and perform very well in all market conditions.
 
And they aren't benchmarking to the S&P, it's to the flexible portfolio benchmark.  Still crushes it.   
 

bspears's picture
Offline
Joined: 2006-11-08

I like inflation protected bond funds along with short term and world bond funds, all NAV moves. I don't reinvest the dividend to allow cash to build up.  I do leave about 25% of the acct in the market to capture some upticks in the market. It shows the client a plan in this particular scary moment to soften anymore downturns.  Again, the same old same old, where a lot of my new accts are from referrals who haven't heard from their advisor.  PLEASE call you clients and discuss their accounts.  They just want to know your looking at it.

BullBroker's picture
Offline
Joined: 2006-12-26

Are you under the impression that the S&P or Dow will end the year positive (after the 15bps fee of course)?
 
No I think Vanguard does a very good job at tracking an index of +/-500 stocks for a 15bp fee.  I don't know how anyone else could do a better job of tracking an index.  No, I am perfectly aware that Vanguard has many different types of funds that track all sorts of sectors, money funds, and bond funds. 
 
I was referencing the "shmuck" analytical theorist broker that believes indexing everything is the only way to go.   
 
Don't worry I wasn't referring to you icecold, I know you are not the die hard "index guy" you will play some satellites. 

troll's picture
Offline
Joined: 2004-11-29

Ice if you wanted to do a core satellite approach, with Large Cap being the core ETF, and actively managed funds for the other styles as the satellites, which ETF would you use - would it be SPY, or IWF/IWD? Or are you using something else

gvf's picture
gvf
Offline
Joined: 2008-07-01

As far as active ETF management, I can definitely recommend taking a look at a firm by the name of Compass EMP (http://compassemp.com/).  The YTD #s on their risk-allocations definitely bode well for indexes. 

troll's picture
Offline
Joined: 2004-11-29

iceco1d wrote:Hehe.  My post kind of gave that away I guess, but I think we were typing at the same time.  I would go with IWF/IWD without a doubt. 
 
Funny - you're right we posted at the same time. Posts dated two minutes apart.
I like the Russell combinations as well.
I have been running discretionary portfolios using primarly MF's, in a wrap platform including Janus Adv 40, and Pioneer Cullen Value/Eaton Vance Large Value for the large cap piece.
I am leaning heavily toward replacing the large cap with IWF/IWD, because even using instituional shares, or A shares and giving 12b-1 fees back to the client, the all in expenses ae not low, between the ER and the Wrap fee. The trouble i am having is that in the past, so much of my outperfornance has come from those large cap funds i mention. But i should know better, thats probably exactly why i should go to ETF's for the core.
 
I'm obviously struggling with this, but will probably go towards the idea soon. Its also good marketing, IMO

Hobby Bull's picture
Offline
Joined: 2008-07-09

80% of fund managers cannot beat the index. 100% of index funds cannot beat the index. 

gvf's picture
gvf
Offline
Joined: 2008-07-01

Hobby Bull wrote:80% of fund managers cannot beat the index. 100% of index funds cannot beat the index. 
That's not entirely fair, the index doesn't have to pay me to manage it, it lives in this land of milk and honey where everything is free and the beer flows like wine.

BullBroker's picture
Offline
Joined: 2006-12-26

I think you hit the nail on the head with your "hourly-fee-only-planner" example.  I have nothing against Vanguard or T. Rowe Price, I actually use some T. Rowe Price funds because they are the best in certain styles.
 
I can't tell you how many account statements I have looked at for prospects that are 100% Vanguard S&P stuck in a fee-based type platform I have come across.  Those are the shmuck advisors I am talking about. 
 
Those advisors give Vanguard a negative "stigma" so to speak.  I still feel the need to throw up a little every time I meet a prospect and see 100% Vanguard S&P in a fee-based platform.

Hobby Bull's picture
Offline
Joined: 2008-07-09

iceco1d wrote:Hobby Bull wrote:80% of fund managers cannot beat the index. 100% of index funds cannot beat the index. 
 
No.  If you want to talk hard numbers:
 
100% of index funds will underperform the index...by an average of about 40 - 50 bps (yea, there are some "expensive" index funds out there - if you go Vanguard funds or ETFs you can keep it lower).
 
It's not 80% of fund managers that will underperform the index, it's actually in excess of 99% will underperform the index, and they do so at an average of about 100 - 120 bps.
 
You weren't here for the portfolio management thread, but lets keep in mind I'm talking U.S. (and even euro) Large Caps.  That's why I use UIT's in VA's. They've outperformed the indexes by a wide margin, net of ALL fees.

newnew's picture
Offline
Joined: 2007-02-23

wow- that's quite a statement! Must be some incredibly smart people--to pick UIT stocks better than M Fd  stock mgrs. That's a new one.

troll's picture
Offline
Joined: 2004-11-29

iceco1d wrote:[
You could always use the SPY for one piece, and the IWF/IWD for another piece if you can't decide (although, I'd have no problem with going to IWF/IWD completely).
 
I think as you are doing this the right way Prato (research, strategy, etc.) - it's important to realize that those funds probably achieved their excess return by "fishing in ponds" that aren't included in the benchmark index - when you start dedicating [larger] chunks of your portfolio to an index, it's important to remember that if you want exposure to assets that are not included in that index, you must integrate those assets separately on your own (i.e. in the past you defer that decision to the fund managers - now you are making the decision yourself, not only to be exposed to XYZ assets, but in what proportions as well). 
 
However there are now so many "alternatives" or "flexible portfolio" funds available that werent out there a few years ago, i.e. Rydex Mgd Futures, Blackrock Global Allocation, Ivy Asset Strategy, etc. that you could get exposure to those assets, leaving it to the fund mgrs to decide which assets. On the other hand, with ETF;s you can really express any idea you have, very efficiently.

newnew's picture
Offline
Joined: 2007-02-23

"On the other hand, with ETF;s you can really express any idea you have, very efficiently."
 
My thoughts exactly. I get a lot of grief from y'all about this, but I prefer to deal in asset classes only. I feel that they drive returns (what % you have in each classes is most imp). Asset class indexes are simple in that they don't "mix" classes. One Am Fd often has a lot of cash, bonds, intl, and dom value for example. I just prefer more precision about that, so indexes are very handy that way. The tax-efficiency is better now AND for the next generation, IMHO. I can't understand why an index portfolio is a negative to most of you-- I see it as a positive, and as a conservative approach with no confusing bells/whistles.

newnew's picture
Offline
Joined: 2007-02-23

BTW, I now find that there is no easier ACAT to get than a Non-Qual Jones port. The funds declined, yet the 1099 still hurt.
 
Too bad Mr. Jim is smart enough to include an index port in the new platform. Bad for me, but GREAT for new Jones clients.

Please or Register to post comments.

Industry Newsletters
Careers Category Sponsor Links

Sponsored Introduction Continue on to (or wait seconds) ×