Advisers make a mad dash for cash

28.8% of those surveyed said they have upped their allocation in the past three weeks

May 30, 2010 @ 12:01 am

By Jessica Toonkel Marquez

Desperate to hang on to the gains in their clients' portfolios over the past few months, financial advisers are selling positions and moving into cash.

An InvestmentNews survey conducted last week found that 28.8% of 993 advisers said that they have moved assets into cash since the market volatility began May 6.

More than one-third (33.8%) of those said that they have increased their cash allocation by more than 15%, while 61.2% said that they have done so by more than 10%.

The past few weeks of market volatility are reminiscent of the severe swings of 2008, and advisers aren't waiting for history to repeat itself.

“We all remember that churning in your stomach every day, watching things going down and trying to decide if we should take the losses, and we kept saying, "Let's wait and see,'” said Michael Greco, an adviser with GCI Financial Group Inc., which has $50 million in assets. “It just behooves you to maintain a dynamic cash position and not be reactive.”

GCI Financial, which largely uses hedging strategies with exchange-traded funds and stocks, has increased its cash allocation to 25% over the past few weeks, up from between 10% and 15%. The firm has reduced its equity exposure to 55%, from 70% at the beginning of the year.


Many advisers have decided that the buy-and-hold doctrine of the investing world is outdated and that in today's more volatile markets, they need to be more proactive.

“Buy-and-hold was an idea that works in certain market environments like what we had in the "80s and "90s when you basically had 20 years of a bull market,” said Bill Bengen, a financial adviser with Bengen Financial Services Inc., which has $50 million in assets under management.

“This is not a buy-and-hold environment,” he said. “This is a trading environment.”

Bengen increased its cash exposure to 35% over the past 10 months. In the past three weeks, the firm has reduced its clients' equity exposure to no more than 10%.

The past few years have caused many advisers to shift their focus from outperforming the markets to managing risk, observers said.

In a recent survey of 100 advisers by GDC Research and Practical Perspectives, one in four said that they are more concerned about managing investment risk than they were a year ago. The survey comes out tomorrow. “I have been in the business for 29 years, and aside from the aftershock of the "87 crash, this is the most shell-shocked I have seen advisers,” said Joseph D. Kringdon, president of Pioneer Funds Distributor Inc.

Two of the past four decades — the "70s and the "00s — were lost decades for returns.

“In this way, many who had put faith in stocks for the long term are somewhat skeptical,” Mr. Kringdon said.

Advisers, however, don't appear to be panic-selling.

In the InvestmentNews survey, slightly less than one-third of 967 advisers said that they are maintaining a cash portfolio of less than 5% A little less than half said that they have cash allocations of between 6% and 15%, while just 20.3% said that they have more than 15% in cash.

“They are moving small percentages into cash, but the implications for the industry is that this money is less sticky than it used to be,” said Don Phillips, managing director for corporate strategy, research and communications at Morningstar Inc.

Most of the advisers who are moving into cash are doing so on their own, and not as a result of client demand. Just 14.9% of advisers in the InvestmentNews survey who said that they recently moved into cash said they were doing so in response to requests from clients.


Advisers at Badgley Phelps Investment Managers, a registered investment adviser with $1.5 billion in assets, decided that it would reduce its equity exposure by 5% if clients requested it, said Clare M. Hansen, an adviser with the firm. The advisers have only received five calls from clients asking that their equity exposure be reduced.

“We don't try to talk them out of it, because while staying in might be the right thing, if it's wrong, it's definitely wrong, and this way, they sleep better at night,” Ms. Hansen said.

The challenge for advisers who are moving into cash is knowing when to put the money back into the market.

For Mr. Bengen, the sign that it is time to get back in is if the Dow Jones Industrial Average approaches the 8,500 level.

“If it gets close to that level, I am going to start buying stocks again,” Mr. Bengen said. “I think I am going to have the chance to buy stocks for cheap, which I haven't had in 20 years.”

Last Wednesday, the Dow closed at 9,974, shedding a triple-digit gain earlier in the day and marking the first time the index closed below 10,000 since Feb. 4. The Dow closed at 10,136.63 on Friday.

E-mail Jessica Toonkel Marquez at


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