March 9, 2009: Financial advisers share lessons, scars from rock bottom

For those working in the financial services industry 10 years ago, memories of the financial crisis are often bookended by the March 9, 2009 bottom, when the S&P 500 Index halted its 17-month freefall for a 56.8% decline from the Oct. 9, 2007 peak.

Today, even with the S&P having gained more than 312% off that bottom, financial advisers reflect on that time with vivid and chilling anecdotes of how out of control things felt for both themselves and their clients.

Tracy Burke, partner and investment consultant at Conrad Siegel, said the S&P’s 37% drop in 2008 proved to be too much for at least one client who demanded he liquidate his entire portfolio in late February, just two weeks before the market bottom.

“By the fall of 2008 this particular client was calling me once a week and the conversations got more and more panicked,” he said. “Everything was rattling him.”

Despite his best efforts, the client converted a $3.5 million balanced portfolio of stocks and bonds into a bundle of 1-year certificates of deposit earning 1%.

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“None of my other clients pulled the plug like that gentleman,” he said of his now former client. “We try not to work with clients that try and time the market, and knowing him, he might still be in the bank CDs.”

As stunning as the anecdote might seem, it speaks to the extreme frustration and anxiety that enveloped the financial services industry that was seemingly caught flat-footed by a global financial crisis that started to unfold in early 2007 as a sub-prime mortgage crisis.

James Gambaccini, managing partner at Acorn Financial, recalls the summer of 2008 when a client brought in an elderly neighbor who was worried about the $4 million she had invested in four bank stocks.

Mr. Gambaccini said the widow, who was in her late 70s, was living off the dividends from the concentrated portfolio of bank stocks, but she refused to diversify the investments away from one of the riskiest sectors at that time.

“I told her Lehman Bros had just failed over the weekend, and we need to sell some of these bank stocks and secure the portfolio,” he recalled.

The widow listened but declined to follow Mr. Gambaccini’s advice.

Within months, the $4 million portfolio had declined in value to $220,000, and the dividends were gone. Shortly thereafter, the woman had to sell her home to finance a move into a senior care facility.

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Like a lot of advisers who lived through the financial crisis, Mr. Gambaccini now shares such horror stories with clients as lessons of how things can go wrong.

Thomas Balcom, founder of 1650 Wealth Management, said one of the lessons he learned from the financial crisis was that a big part of his job is being an amateur psychologist.

“As we were getting close to the bottom, I had one client panic and insisted we sell everything in his $750,000 portfolio, even though we told him he owned structured notes that would have protected his portfolio,” Mr. Balcom said. “My own father wanted to do that same thing, but I was able to explain to him that by sitting in cash he would never recoup his losses.”

Kenneth Nuttall, director of financial planning at BlackDiamond Wealth, said he had to deal with a nervous parent during the stock market collapse.

“My mother follows the market, but she lets me handle the money,” he said. “A few days before the March 9 bottom, she told me she wanted to sell everything.”

Mr. Nuttall recalled telling his mother that her desire to sell was a major buy signal.

“I said if you’re ready to sell, we should be buying now,” he said. “I started investing more of her money, my own money, and some clients’ money in the market, and I now call it my mother’s market bottom.”

Mr. Nuttall said he still jokes with his mother whenever markets get choppy about that reverse market call.

“If the markets are down, I’ll call and ask how she’s feeling about stocks today,” he said.

For a lot of advisers, the months leading up to the March 9 bottom are recalled as a blur of endless phone calls, meetings with clients and long days.

Eric Walters, president of SilverCrest Wealth Planning, recalls his personal tipping point during a meeting with a client who started insulting him out of frustration.

“I had worked with this client for a while and in one conversation about her investments she turned on me and started insulting me,” he said. “Once it got personal, it really got to me.”

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Mr. Walters recalled being so stressed out during that period that he started tearing up when the client began insulting him.

“She stopped what she was saying and asked if I was okay,” he said. “She apologized for how hard it was on me and vowed to stop fretting about the market so much, and she did.”