Engaging disillusioned clients

Part of investor disillusion has to do with receiving the same old messages from advisors. Instead, what clients are looking for is fresh advice — not fresh in the “change everything” sense but fresh in the approach. “They’re looking for recommendations for what they view is a new reality,” Richards explained at the Canadian Institute of Financial Planners (CIFPs) annual conference in Halifax on Monday. “They feel, ‘I own the same funds I did a year ago, nothing’s changed.'”

Obviously, every fund manager is actively managing these funds on a regular basis but investors seldom hear that side of the story from their advisors. “Whose responsibility is it to make sure that investors understand there is actively managed change happening in their portfolios?” Richards asked. “[It’s about] letting them know there are things happening in their portfolios.”

In the past, advisors would send clients a form letter explaining the nature of market downturns. That strategy just isn’t good enough today, Richards said. “They’re looking for more than a form letter,” he says, noting this approach backfired for one firm he knows. Clients called the letter “pap.”

Even if it’s true, clients don’t want to hear: Stay the course, nothing’s changed. “Many investors interpret that as meaning my advisor isn’t prepared to do the hard work to make changes,” he says. “Now that doesn’t mean you make changes, and it doesn’t mean you can’t recommend stay the course, but if you recommend that, you have to work harder to get investors to buy into that expectation by demonstrating the alternatives to consider, and the work you did. Hopefully you’re able to say that ultimately the portfolio you had a year ago made sense then and it largely still makes sense now.”

A panel of three advisors spoke about how they have helped clients through the downturn. Dessa Kaspardlov, an advisor with Manulife in Windsor, Ont., said she concentrates on consolidating debts and cleaning up their household balance sheets. In cases where clients require guaranteed income, she considers the guaranteed minimum withdrawal benefit products. “For the first time, we have a pension-like replacement product and we really need to look hard at how these can help our clients,” she said.

Wayne Lang, principal and senior financial advisor at Beacon Wealth Management in Halifax, has been using the downturn to adopt a number of strategies now that clients’ capital gains have been reduced. “There’s a silver lining in a terrible cloud,” he noted. “Although we traditionally rebalance, we’ve been able to add more to the capital class. There are some great products out there. If a portfolio has been growth but it needs to become balanced and conservative as the client ages, [making that change] used to lead to massive capital gains but now [some companies] have introduced capital class and this is all prevented.”

Lower capital gains have also allowed Lang to reinvest with his favourite managers who had switched firms a few years ago. He’s been doing a lot of dividend yields in his portfolio rebalancing and finally, using the tax-free savings account as an alternative for young families who don’t want to commit to a registered education savings plan just yet.

“The money can grow tax-free for the period of time, say until the child is 10 years old and then you can catch up by going back to the RESPs and getting the government grants,” Lang said. “The impediment is that you lose the compounding but it does take away the risk of creating an RESP in a situation where [it’s not needed].”

Michael Nuschke, a financial planner with Assante Capital Management in Halifax, has been emphasizing open-ended conversations. He asks clients how they are doing and for their take on the economic situation.

“Recognize that people have gone through a loss and there has to be a sense of empathy,” he said. In the first CIFPs presentation of the day, “Lou Schizas asked, ‘Where will you be when this recession is over?’ And I think a lot of my clients would say, ‘I might be dead.’ I think a lot of clients have that feeling, so to say to them, ‘everything’s OK’ is a little glib and you have to be careful about that.”

Nuschke then reassesses clients’ retirement income situation, looks at the guaranteed sources of income, expenses and any gaps. He, like Kaspardlov, looks at guaranteed products such as annuities and GMWBs as possible opportunities to fill those gaps.

“There should be a focus on current income in terms of good dividends, high-quality securities as opposed to index-like investing,” Nuschke added. “Make sure your clients have at least three years of their expenses set up in cash or cash equivalent. And on the portfolio side, we rebalance equity and non equity. So if [the markets] go down, we buy more equity. If it goes up, we take some equity off the table.”

(06/09/09)