Last week's implosion on Wall Street has given financial advisers and their clients a jolt of unprecedented proportions.
Some 76.3% of 1,171 advisers polled in an
InvestmentNews survey said that they expected the news on Wall Street to get worse before the year is over.
The poll was e-mailed to advisers Tuesday after one major financial services firm filed for bankruptcy protection, another agreed to be sold and a third was bailed out by the government.
Eighty-two percent of advisers surveyed said that they had received telephone calls or e-mails from clients worried about their portfolios.
"We've gotten bombarded," said Todd Hicks, president of Atlanta-based Allegiance Retirement Solutions Inc., which manages $160 billion in assets. "[Our clients are] definitely a little bit shaken."
Many advisers haven't waited for their customers to come to them: 90% said that they had reached out to their clients in recent days to offer reassurance.
Lance Drucker, president of Drucker Financial Group, has contacted clients by e-mail, sent letters and has made phones calls to ensure that there is no sell-off panic.
"What an adviser is really being paid to do is to keep a client from making behavioral mistakes," said Mr. Drucker, whose New York-based firm manages about $125 million in assets. "Clients at this point are looking for hand-holding."
In the face of client anxiety, 70.3% of advisers who responded to the survey said they would maintain customer allocations to equities.
And 13.9% said they would increase those allocations, while 15.8% said they would decrease them.
TOXIC COCKTAIL
Last week's downward spiral began with a toxic cocktail of events that sent the financial markets into a frenzy.
Late Sunday night, Lehman Brothers Holdings Inc., the once-venerable 158-year-old New York-based investment-banking firm, filed for Chapter 11 bankruptcy protection after its attempts to find a buyer fell flat.
At the same time,
Bank of America Corp. of Charlotte, N.C., agreed to acquire Merrill Lynch & Co. Inc. of New York for $50 billion.
On Tuesday evening, the
Federal Reserve Bank of New York said that it would lend as much as $85 billion to American International Group Inc. of New York to meet the liquidity needs of the troubled insurer.
On Monday, the Dow Jones Industrial Average plummeted 504 points. But the index ended about where it started the week after a roller coaster ride.
"Clients are asking if they have exposure to
AIG and Lehman, and they want us to explain the risk," said Jeff Bratz, a certified financial planner with Legacy Financial Group in Urbandale, Iowa, which manages $200 million in assets. "We have made phone calls and sent out e-mails and are explaining what has gone on and why it is happening."
Westgate Capital and Consultants LLC of Tacoma, Wash., sent e-mails out to all clients to show that it was on top of the situation.
"We really try to get ahead of the phone calls in a situation like this," said Scott Shelton, a certified financial planner at Westgate, which is a branch office of Boston-based
LPL Financial with more than $200 million in assets under management. "Most folks just want to hear we're engaged."
Armed with the belief that the markets will rebound in the near future, Henry Schwarzberg, founder of Mobile, Ala.-based Henry Schwarzberg Investment Counsel, isn't shifting his clients' allocations.
"There is no need to change course," said Mr. Schwarzberg, who said that none of his clients has called with concerns since last week. "This is another storm we're going to weather."
Mr. Schwarzberg declined to provide his firm's assets under management.
Mr. Hicks said that his firm is instituting a defensive strategy to combat the market turmoil. Some adjustments include changing asset allocation to 35% stocks and 65% bonds after changing to a 50-50 stock-to-bond ratio this year.
"The biggest thing is to try and hedge against the equity market," Mr. Hicks said.
Lori Barnes, a financial adviser at City Securities Corp. in Indianapolis, which has $2.5 billion in assets under management, expects the bloodbath in the financial services industry to continue for the remainder of the year, with more bank failures likely.
"In the near term, I think it's going to get even uglier," she said.
Ms. Barnes' firm intends to reduce clients' equity exposure to both domestic and international investments, and is instead allocating more to structured products.
Paul Ewing, chief executive of Prosperity Advisory Network LLC in Overland Park, Kan., which manages $240 million in assets, thinks that the events of last week were a "watershed." He said that their impact will be felt for years to come.
"We are going from a multifaceted capital system to a mono-faceted capital system, and I think that's shocking," Mr. Ewing said.
After a week of tumult, the future of the financial markets started to look up Friday when top officials from the administration and Congress announced sweeping changes, including the likely creation of a government entity that would take troubled assets off of banks' and financial firms' balance sheets and sell them at auction.
Looking at the week in context, Mitch Glicksman, a partner at Evergreen Financial Associates LLC in Fairfield, N.J., was relieved that the government had stepped in to stabilize the markets.
"I think we've learned the dangers of financial engineering and how wrong it can go," said Mr. Glicksman, whose firm manages $75 million in assets."I think that we are probably in a much better position to thrive economically because of all of the safety nets that have been put in place."
E-mail Andrew Coen at [email protected] and Aaron Siegel at [email protected].
