Keep calm and lower client risk exposure

Better early than late' when it comes to preparing clients for a recession

Sep 21, 2019 @ 6:00 am

By Jeff Benjamin

Most financial advisers shudder at the mere mention of market timing because it often reflects panic, fear and an undisciplined approach to investing. But standing on the railroad tracks when a train is bearing down is foolhardy.

"Tactically, you want to look at where you can lower risk in the overall risk profile of a portfolio, especially for clients who are more sensitive to loss or near retirement," said Robert Bartenstein, chief executive of Kestra Private Wealth Services and a 20-year veteran of financial services.

Specifically, it makes sense for most clients to increase allocations to large-cap stocks that pay good dividends and are less exposed to international trade wars, Mr. Bartenstein said.

"Our mission statement is that clients don't come to us to make them wealthy, they come to us to keep them wealthy," said John Traynor, chief investment officer at People's United Advisors, the registered investment adviser for People's United Bank. "With that in mind, we have to have the humility to know we're not going to call a recession perfectly, but we'd rather be early than late."


For Mr. Traynor, part of being early means reducing equity exposure that has been in overweight mode since June 2011. Those 67% allocations to equities have been reduced to a neutral 60% weighting for most clients beginning in August, he said.

"It's no longer justified having an overweight equity position," Mr. Traynor said.

For the bulk of advisers, the best way to keep clients calm and on track during periods of economic and market uncertainty is a good old-fashioned bucket strategy.


By separating a client's overall portfolio into hypothetical buckets that include cash, income and growth, advisers find that clients are better able to accept that only some of their investments are exposed to higher risk.

"Most clients will think their entire portfolio is being exposed to risk, but by using a bucket strategy we tell them to think of their stock market money as their 10-year money, and to keep in mind they also have a cash bucket and an income bucket," said Robert DeHollander, financial planner at DeHollander & Janse Financial Group.

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Strategically, Mr. DeHollander said he has been reducing risk on the equity side as the odds of a recession continue to increase.

"We're not market timers, but we've made a lot of money over the last few years, so why not take some money off the table and look for an opportunity to reenter," he said. "I really think there's more downside risk than upside right now."

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Meanwhile, Jeffrey Powell, managing partner and chief investment officer at Polaris Greystone Financial Group, said when you're living through the country's longest economic expansion, there is no shame in playing some defense.

"We're tactical here," he said. "Would you drive the same way on a nice sunny day as you drive in a blizzard?"

10 recession lessons from veteran advisers who have been there
  1. Recessions are often associated with stock market downturns, but economic slowdowns can occur during bull markets.
  2. Markets can remain irrational longer than you can remain solvent, so don't be married to your viewpoints.
  3. You often will not know you're in a recession until it's underway and declared by the federal government.
  4. Pay attention to warning signs.
  5. Being on the safe side doesn't hurt anyone.
  6. Now is the time to review portfolios that haven't been looked at in the past 12 months.
  7. If you're convinced something is overvalued, don't own it.
  8. Make sure your clients know their risk tolerances.
  9. Increase the level of communication with clients now.
  10. Great investment allocations and decisions are made during challenging markets.


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