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Boosting clients’ portfolios and psyches

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January 23, 2008

NEW YORK (AP) - With the stock market standing on shaky legs, financial advisers are working to bolster clients’ psyches as well as their portfolios.

Relationships between advisers and their clients can grow strained when markets head south, as investors want to hastily sell their positions or change their investment strategies on the fly. To stem the lack of confidence, financial advisers are developing strategies to create recession-resistant portfolios and soothe client concerns before they, too, become volatile.

Calming clients may require listening to their worries, rather than simply citing investment theory and history. Portfolios can be adjusted with a number of tools, including the newfangled (inversely performing exchange-traded funds) and the old fashioned (bonds, cash, gold bullion).

Clients “want to get out of the way of a train wreck,” says Bob Phillips. “But these are the worst times for them to make decisions about their portfolios,” says the managing partner at Spectrum Management Group of Raymond James & Associates Inc., a unit of Raymond James Financial Inc.

To pre-empt some of those impulses, many advisers will send reassuring e-mails to clients when market news turns inordinately bad; Phillips sent one such e-mail Tuesday morning, when the Dow Jones Industrial Average started the day down more than 460 points, or more than 3.8 percent.

Market jitters can affect the wealthy as well as the mass affluent. “I have clients worth tens of millions of dollars who will lose sleep over a 3 percent decline,” says Gary Schatsky, a financial adviser and founder of Financial Planning firm ObjectiveAdvice.com.

“But it’s not for the adviser to say ‘You’re ridiculous,’ ” he says.

Since advisers are well-versed in theories of investing and behavioral finance, it can be tempting to respond to clients’ fears with academic theories and statistics of past market declines. But advisers could end up hurting more than helping their relationships with clients if they keep the discussion abstract.

“An adviser can’t be a shrink, but the worst thing they can do is not listen,” says Dr. Brett Steenbarger, clinical associate professor of psychiatry and behavioral sciences at SUNY Upstate Medical University who works with professionals in financial services. “There’s a real value in the venting, and a real value in someone feeling like they’re being heard.”

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