Jim Weddle, who has been a managing partner of Edward Jones since 2006, has done something that he hadn't done in more than a dozen years: write a letter to the company's 7.5 million clients warning them about the risks in their holdings.
“I don't like to get between financial advisers and their clients,” he said Friday morning at the Investment Company Institute general membership meeting in Washington.
In this case, however, Mr. Weddle has taken the initiative because of the losses that bonds could incur if interest rates rise.
It is the first time that he has written directly to clients since 2000, when he warned about dangers in the stock market, he said.
“Rates are being held at a very low level. When they rise, you'll see losses,” Mr. Weddle said he wrote in the letter, which has yet to be sent.
“Let's anticipate that and look at portfolios to make sure they're properly diversified,” he said.
Because it is unclear when interest rates will begin to rise, Mr. Weddle, as well as leaders at Ameriprise Financial Inc. and Bank of America Merrill Lynch, are doing the only thing they can now, and that is preparing clients for what they see as inevitable.
“We are communicating, communicating and communicating,” he said.
John Thiel, head of Merrill Lynch Wealth Management, knows firsthand the angst that rising rates can cause retirees.
“I was a financial adviser in 1994,” he said. “I remember what could happen.”
That year was the last time rates rose significantly and it was the first time that the Barclays U.S. Aggregate Bond Index had a negative total return for the year.
Rates are hovering less than 50 basis points from all-time lows, creating a real conundrum for clients.
“There's a raging bear market in what baby boomers need most and that's income,” said Patrick O'Connell, an executive vice president at Ameriprise Advisor Group. “Advisers are having to look at avenues they haven't looked at before to get income.”
Given that the majority of clients are nearing retirement or in retirement — and heavy in bonds — the stakes for the industry couldn't be higher.
Investors already feel burned by the stock market, thanks to the technology and financial crises, so they can't afford to turn away from bonds, too.
“We have to get this one right,” Mr. Thiel said. “What we can do is be really proactive.”