How Financial Planners Keep Anxious Clients on Track During Volatile Times

Months of stock market turbulence have meant months of rising anxiety for clients, financial planners say.

As a result, some financial planners who are otherwise strong proponents of a buy-and-hold strategy are starting to make changes to the investment portfolios of some of their clients.

However, financial advisors say they are not necessarily trying to find a way to beat a tough market.

Rather, as they sell off some holdings and buy others, planners say their goal is to save clients from sleepless nights by realigning their portfolios to match their current level of risk tolerance.

And for some clients, tolerance for risk taking has gone down significantly with the downturn in a market that had always seemed to go up.

Even so, planners describe the changes as more tactical than anything else.

"With the market being up the last few years, people have tended to be more risky then they really are," says Ken Nuttall, director of financial planning BlackDiamond Wealth Management in New York and a certified financial planner. "With the market shapeup, we have seen people become more risk averse."

High Anxiety

Dennis Nolte, vice president and financial advisor at Seacoast National Bank in Florida and a CFP, says he has fielded five phone calls from clients over the past three weeks about market volatility.

Nolte repositioned three of the clients by raising cash or buying Treasury bonds or CDs.

While some clients have been unfazed by the market rollercoaster, others are simply hard-wired to be more risk adverse. If they are meeting their savings and projected income goals, Nolte doesn't have a problem shifting their portfolio to take out some of the risk.

"You can't argue against biology and what is hard-wired," Nolte says.

Scott Bishop, an executive vice president for financial planning and a partner at STA Wealth Management in Houston, says his firm has created a system for managing market volatility.

Bishop's firm employs a "tactical overlay" on the investments it manages that sells off holdings, and most often ETFs, in sectors that are declining, and uses the money to buy Treasury bonds. There is also a built in "sector rotation" that works to keep money in the market.

The aim isn't to react to volatility by bailing on the market, but rather to "buy more defensive" sectors using a methodical, disciplined approach.

Bishop makes clear, though, that the system is not meant as a "guarantee of out-performance," but rather a way of managing market turbulence.

"Instead, it shows clients that we do have a discipline to reduce risk vs. waiting for them to call (or for our "gut" to tell us) to "sell," Bishop says.

Glenn Moore, a CFP at Gibraltar Financial in Pinehurst, N.C., says his firm doesn't look at changing the overall composition of asset classes, such as the ratio of stocks to bonds, during a period of market uncertainty.

But Gibraltar does examine the "types of stocks and bonds" it holds "and evaluate from there."

"In our clients' portfolios, we made a change at the end of the third quarter to move in to lower beta, higher yielding stocks (utilities, REITs and staples) and rotated out of lower quality credit in our fixed income sleeve into laddered treasuries," Moore says.

Committed

Yet even planners who are making changes to client portfolios say they believe in the importance of a long-term, buy-and-hold strategy.

Jon Ten Haagen, a CFP and founder and principal of Ten Haagen Financial Group in Huntington, N.Y., says he is considering only some minor changes to his clients' portfolios.

One possibility Ten Haagen says he is discussing with clients is selling some fixed-income bond funds and shifting the money over to rising dividend funds.

"I live by the buy-and-hold and professional money management theme. Buy quality, review it periodically and do not watch your accounts every day," Ten Haagen says.

Edward Snyder, president of Oaktree Financial Advisors in Carmel, Ind., says while he is doing some tax-loss harvesting as year-end approaches, he's not making changes to the allocation of his clients' portfolios.

Snyder, a CFP, says he works to cultivate a long-term investment mindset on part of his clients, explaining to them frequently that "volatility is the price we pay for the long-term returns the stock market provides."

"I use a buy-and-hold approach because it's the approach that will accomplish most of my client's goals," Snyder says.

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