Unflinching guidance is your ultimate fiduciary duty

Unflinching guidance is your ultimate fiduciary duty
The longer the bear market continues, the more likely your clients will be to abandon their financial plans, sell their growth assets, and potentially impair their financial futures.
MAY 10, 2023

Your clients are starting to get a little worried about the markets and so are mine.

The bear market that began over a year ago has gone on much longer than many were anticipating. The longer this continues, the more likely your clients will seek to abandon their financial plans, sell their growth assets, and potentially impair their financial futures.

While the current decline in stock prices isn’t anywhere near as extreme as those caused by the Covid lockdowns, the bear market of 2020 was over in a matter of weeks. People are beginning to question whether this one will ever end.

What makes the decline in stocks even more unsettling is that the performance of the bond market last year was downright nasty. Plus, returns of many of the alternative asset classes were similarly awful.

It's our nature to flee from danger and run to safety. It’s how we’ve learned to survive as a species. And while that quality has proven useful in escaping the jaws of a lion, it can be disastrous for investment performance.

I began advising in 1990 and have lived through numerous challenging market cycles. I wish I could state that 100% of my clients followed my advice and remained invested during the temporary cycles, but the fact is not everyone did. A handful of clients sold out at the worst times, only to miss the recovery.

I believe it’s my duty to do the best I can to ensure that none of my clients make fear-based financial decisions that will impact their futures. One reason I feel so strongly about this is because I still know some of the families that didn’t take my advice, and I’ve seen the impact it had on their lives.

One couple stands out. I began working with them in the early 2000s a few years prior to their retirement. They didn’t have excess money, but they had saved enough to be able to provide for the remainder of their days. Their retirement allocation was moderate, with ample reserves in cash and short-term instruments to provide liquidity for several years. Any assets in stocks had long-term horizons.

As the markets began to fall in late 2007, this client would call every few months to inquire if he should liquidate his stocks. I would assure him with charts, graphs, history and my experience. He would end our conversations somewhat buoyed, but as the bear market continued, our conversations seemed to have less impact. Eventually, he called on March 11, 2009, when I was out of the office, and gave orders to sell his securities.

You probably know how this ends. They had to reduce their retirement income and eventually take out a reverse mortgage to pay their bills.

Our business is not merely about financial plans and investment portfolios. It’s about guiding our clients through various cycles of life, whether they're economic or personal. And if there ever was a time that your clients needed your wisdom and unflinching guidance, that time is now.

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with more than $16 billion in AUM.

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