The uncertain economic recovery and stock market volatility, which have driven many equity investors to the bond market, are leading advisers to do intensive client hand-holding.
“When the news is bad about jobs, and a possible double-dip
recession, the old fears rear their head,” said Jane King, president of Fairfield Financial Advisors Ltd.
Just last week, she said, she received a call from an anxious retired client in his 60s who was concerned about risks in his portfolio.
“He wasn't panicking, but just needed to talk,” said Ms. King, who calmed the client by explaining that his $2.7 million portfolio was doing well, led by investments in global companies such as Anheuser-Busch InBev (BUD), which has gained 24% since last September, and Nestlé (NSRGY.PK), up 23% over the same period.
“I reminded him that the returns he enjoyed couldn't have been achieved in bonds,” Ms. King said.
Some advisers say clients are being hypersensitive about financial news and economic data.
Jeffrey Gitterman, chief executive of Gitterman & Associates Wealth Management, said one client called him last month, anxious about the direction of the economy after reading reports of the latest meeting of the Federal Reserve's open markets committee. The meeting revealed disagreement about the strength of the economy among the central bank's leadership.
“He wanted to know where I stood, since even the Fed governors can't seem to agree about where things are going,” Mr. Gitterman said.
Although he is “pretty negative” about the U.S. economy, Mr. Gitterman is steering clear of short-term bonds, which he says are too pricey and risky, considering that the direction of interest rates could change. Instead, he has increased his allocation to emerging-markets debt and equities to about 25%, his highest-ever allocation to those asset classes.
“From an adviser standpoint, it's a difficult time,” Mr. Gitterman noted.
Some advisers are addressing the worries of skittish investors by having substantive — and difficult — conversations about the realities and perceptions surrounding risk.
“Do we have more risk today than back in 2007, when the economy was on the brink?” asked Kacy Gott, chief planning officer and chair of the wealth planning committee at Aspiriant LLC. “We all felt much better back then, but we had much more risk.”
If a theoretical discussion doesn't resonate with the client, Mr. Gott said he gets specific about returns.
“We say that we know and understand what a client is feeling about there being greater risk. But we also say that we don't totally agree with that point of view. If a client wants to invest more conservatively for the short term and move into bonds, we want them to understand what that does to their overall plan,” Mr. Gott said.
One of his clients, for example, reaps an annual income of $185,000 from an actively managed equity portfolio. When Mr. Gott ran the numbers, assuming current rates of return on Treasuries, the client's annual income fell to $150,000.
“I asked him whether the safety of government bonds is worth $35,000 in foregone income,” said Mr. Gott, who is scheduled to check in with his client in a few weeks to decide on a course.
“Will clients ever get it?” he wondered. “Will people ever understand that the time to invest in the market is when they're least comfortable?”
David Morganstern, co-president of CMC Advisers LLC, shares that sense of frustration.
“I have a fiduciary responsibility to help clients manage their retirement,” he said. “If we pull to the sidelines and miss an opportunity, that's not a responsible posture. Clients want growth when the market's going up and preservation when it's going down, but they can't have it both ways.”
