Mark Cortazzo: "There were some very tough conversations"

SEP 15, 2013
Q. How did you keep clients from panicking during the crisis? A. We had money in programs with strong guarantees — these are strong annuity companies. But when you have headlines with companies like [American International Group Inc.] being at risk, there were some very tough conversations about the strength [of issuing insurance companies]. One of the largest companies that we used was a mutual insurer that was very conservative with how it invested its reserves. When the crisis hit, the fact was that this company had very high-quality bonds and government bonds in its portfolio that rallied dramatically. It was something we deliberately looked at when we chose how to have the clients' money invested. The crisis allowed annuity clients to do what they should've been doing but were afraid to do: weather the storm and stay invested. The S&P 500 had the most severe drop in a single year in 2008, and that was followed by the shortest period it took to double in value — a severe hit followed by a severe and steep recovery. There was also the biggest net redemption in equity mutual funds in March 2009, so most people were getting out at the exact bottom and they missed this fast recovery that followed. People with annuities were able to stay the course. They had that income protection or guarantee of principal. There may have been other areas of the portfolio where these investors became defensive, but even net of paying higher fees for the protection, they didn't miss the rally. Having that protection gave them the fortitude to stay fully invested. Mark A. Cortazzo Senior partner Macro Consulting Group Parsippany, N.J. — as told to Darla Mercardo NEXT CRISIS COMMENTARY - Mohamed El-Erian: "Some of Lehman's contributing factors persist"

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