The terrorist attacks stunned investors from Wall Street to Main Street.
In response, many are maintaining their investment resolve. But some, despite reassurances, pleading and even a few threats from their brokers, are dumping their long-term financial plans and bailing out.
“September 11 was obviously a significant event, but this has been going on for over a year,” says Brand Meyer, president of the Financial Services Group at First Union Securities in Richmond, Va. “What we're seeing here is the need for financial advisers to [offer] clients more direction, more hand-holding and more affirmation of long-term plans than they have in the past.”
Sure, clients need hand-holding. Everybody tells you clients need hand-holding. But how, exactly, do you convince clients to remain rational while you're holding their hands? What words do you use? What evidence can you present?
Emphasize the Importance of Routines
Slow and steady wins the race. It worked for the tortoise, and it can work for your clients. Recount the fable — or any other anecdote — about cool determination to reinforce the message.
Here's what James Gorman, Merrill Lynch's new retail chief, is telling jumpy clients: “Unless you're planning on liquidating your portfolio and putting it under your pillow, be calm, stay true to your financial discipline,” he says. “People get hurt when they stray from a discipline, whether it's finance, personal health or any other routine they have. Losing money through rash decisions is a personal tragedy.”
Remind clients of your training, education and experience. Highlight the fact that everything you've learned over the years points to the value of consistency. If ever there was a time to recite the buy-and-hold mantra, it's now.
Illuminate the Opportunity
Although past experiences aren't a guarantee of future events, there are some indications that the market will rebound in the next six to 12 months. One month after Iraq invaded Kuwait in August 1990, the S&P 500 was down almost 5%, according to Ibbotson Associates (see “U.S. Market Recovery After Tragedy,” below). But investors who held tight were rewarded with a substantial upswing in the 12 months that followed. The return on the S&P jumped to 15.9% six months after the invasion and 27% by one year later. It stood at 57.7% three years after the invasion.
“Many times there are overreactions to tragedies like these from a market standpoint,” says Mike Henkel, president of Ibbotson in Chicago. “I don't know when the market's going to take off again. It could be next week, next month or next year. The thing I do know from history is that if you miss those very small number of months (after the market bottoms out), the return on your stock portfolio looks an awful lot like the return on T-bills.”
In this case, scaring your clients into inaction might be a good thing. “If you're not in the market when the market eventually goes back up, you have a very small chance of ever recouping your money, much less getting ahead,” Henkel says.
Lend a Sympathetic Ear
Play amateur psychologist, suggests Michael Brizz, president of Center for Professional Achievement, a coaching firm in Bainbridge, Ohio. “You have to treat clients as total human beings,” he says.
Ask clients how they were impacted by the events and how they're feeling about the market's uncertainty. “When we get into conversations like this, they're not very comfortable, but look at what happens when you're there for them,” he says. “Keep the focus on how they're doing, not on the political solutions or anything else.”
In unsettling times, clients need support and guidance. Let them know that everything is going to be OK. And finally, don't swallow the emotional burdens of your clients. Make sure there is someone in your family, office or circle of friends you can confide in.
Believe in America
Tell your clients that America remains strong, and truly believe it, says Ric Edelman, a financial planner and author based in Fairfax, Va. Use powerful language.
“These attacks, while tragic, are the equivalent of a bee sting for our country,” Edelman says. “These cowards may sting us again, but they cannot win because there are not millions of them. There are just a handful of them lurking around. Their ability to hurt us fundamentally is incredibly minimal.”
Remember the old broker creed, “Often wrong; never in doubt.” Let your clients know you have no doubts about the future of this country.
Be confident. Edelman offers these statistics to support his optimism. 1) Although total losses from the Sept. 11 attack may exceed $100 billion, the gross domestic product is $10 trillion. “That's like having $100 in your pocket, being mugged and someone stealing $1,” he says. 2) Although insurers will pay out $30 billion to $40 billion in claims, the insurance industry has more than $3 trillion in assets, he says. “To these guys, this is petty cash. The insurance industry is solvent, secure and strong.”
Let it Go
At some point, coddling frazzled clients becomes counterproductive, says Mattituck, N.Y.-based brokerage industry consultant and author Nick Murray. For the sake of your sanity, let these unreasonable clients go.
“I reject the idea that you can prevent people from doing something irrational,” he says. “I think a lot of brokers have burned themselves up trying to reason with people who are incapable of reason.”
These are emotional times for everyone, Murray says. “You have to respect the power of the proclivity to panic. You have to stand back, let them go over the edge and not take you with them.”
Never consider it a failure on your part if a client goes off the deep end, Murray says. Let it go. And move on to clients who are still interested in a productive relationship.
“If you let the crazies bleed your energy, you'll have nothing left for the people who want help.”
Registered Representative welcomes your comments on this story. Contact Senior Editor Michael Hayes at [email protected] or call 800/621-0720.
Sanity Manual
Need help crafting your argument supporting levelheaded investing? Try “Financial Security in Troubled Times” by Ric Edelman, a Fairfax, Va.-based financial planner.
Edelman wrote it in October — in two days — because he wanted to get the information out quickly. He says advisers can give the book to clients because it drives home the need for insurance and professional advice. “The '90s are over,” he says. “People thought that they were going to get rich buying tech stocks on margin. Sept. 11 changed all that.”
Published by HarperCollins, the 128-page book (ISBN 0060094036) will be available this month.
— M.H.
