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Virginia’s top wealth advisers find clients calm in recent crises

Crises offer investors good opportunities – if they stay calm

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Print this page by Doug Childers

In the days after the March 11 earthquake and tsunami that killed more than 13,000 people and crippled a nuclear power plant in Japan, the world was poised for the worst. The Japanese stock index fell more than 11 percent, and equity markets around the world dropped sharply as well. Japanese companies — including Toyota, the world’s largest automaker — idled plants as supply chains broke down.

For a while, it seemed to be another lesson in how inextricably linked global markets have become. Before the earthquake, political turmoil in the Middle East had led to a sudden jump in oil prices. And after the earthquake, uncertainty about nuclear safety rippled through countries with plans for new nuclear facilities.

The early reaction among some wealth advisers’ clients, however, was muted. Ric Edelman, chairman and CEO of Fairfax-based Edelman Financial Services, says that none of his 14,000 clients called about their portfolios, for example.

Edelman, who manages assets worth $6.2 billion, is one of 1,000 wealth advisers nationwide who were singled out by Barron’s magazine in February using a system developed by author R.J. Shook. Twenty-five of those wealth advisers work in Virginia. Edelman topped the Virginia list for the second year in a row.

Assuaging clients’ worries is part of the job description for wealth advisers. And in the past 12 years — which have brought us the dot-com bust, the 2008 financial crisis and the ongoing housing slump — wealth advisers have had plenty of opportunities to offer psychological support to their clients.

“Money is an incredibly emotional subject,” says Neil Goetzman, an Alexandria-based financial adviser and senior vice president of investments for Merrill Lynch Wealth Management. “Because of a strong one-to-one relationship with our clients, in many crises we are counselors for them, helping them think through the best course of action.”  With $411 million in managed assets, Goetzman was No. 19 on Barron’s list of Virginia’s top wealth advisers.

“You have to be the stable figure for your clients in times of crisis,” says Jeff Carlton, senior vice president of investments for UBS Financial Services and founder of the Vienna-based Carlton Group, which oversees about $875 million in assets. He ranked No. 6 on Barron’s Virginia list.  “It’s important to know your client and stay focused on the horizon and not on the short-term swells of the sea.”  But few clients called in the wake of the Japanese disaster, he says.

Why not? 

When is a crisis not a crisis?
The reasons are varied, experts say. Diversified portfolios played a key role, for example. “Our portfolios are designed to withstand this kind of situation,” Edelman says. “They have less than 2 percent invested in Japanese stocks.”

The relatively short duration of the stock market drop relating to the Japanese disaster helped calm investors’ nerves, too. “Japan had a negative impact for two weeks,” Carlton says. “In the financial crisis of 2007 and 2008, you’re talking about 18 months and a 57 percent decline in the markets.”

In fact, suffering through the financial crisis of 2008 might have influenced how some investors perceived the Japanese crisis. “A 2 to 7 percent market correction doesn’t even faze people anymore because they’re not 100 percent invested in equities,” says Jamie Cox, a financial adviser and partner with Harris Financial Group in Colonial Heights. He landed at No. 13 on Barron’s Virginia list with $450 million in managed assets.

A dozen clients called Goetzman about the Japanese crisis, a number he found surprisingly high. “I thought they would have been battle-hardened” by the 2008 financial crisis, he says. “But I was able to talk them out of doing anything that would have altered their plan for long-term financial success.”

Many veteran wealth advisers say 2008 was the worst crisis they’ve faced, in part “because most assets fell,” Carlton says. “In the dot-com bust of 2000, you could have diversified and avoided the worst of it by strategically asset-allocating away from some of the hot areas. But in 2008, in my opinion, there were only two asset classes — Treasuries and managed futures — that did well.”

Cox likens crisis reactions to a panicked crowd. “Everybody’s running away from something, and you have to ask if they’re running just to run,” he says. “In a credit crisis like we had in 2008, you’re probably running for the right reason.”

Today’s clients might be battle-hardened, but they aren’t bulletproof. The BP oil spill spooked some American investors last year because “it was closer to home, and it had an immediate and sustained impact on the tourism industry in the Southeastern U.S.,” Edelman says. “It also caused a robust section of the economy to sustain a blow.”  By comparison, the Japanese economy has been languishing for more than 25 years, he adds.

And the next crisis might already be building momentum.  Oil prices, which returned to a steady climb in the weeks after the Japanese earthquake, threaten to slow American spending and put the brakes on a sluggish recovery.

“Oil is an in-your-face thing for consumers,” Cox says.  “If you have a consumption-based economy like we do, you put $5 on regular unleaded and people drive less” and cut back on their spending.
A crisis triggered by high oil prices wouldn’t be contained to the U.S., either.  “There’s nothing that will stop a robust economy in the emerging world faster than inflation” fueled by rising oil prices, Cox says.


Investment 101
So what advice do wealth advisers offer clients when it comes to global crises?  It’s pretty simple.

First, stay calm. “I’ve never seen anyone make money by panicking,” Goetzman says. “That has never been a successful investment strategy.”

Second, do your research before you act. As a rule of thumb, Goetzman says, his firm tries “to make as few decisions as possible when we don’t know all the facts.”

Third, consider doing nothing. In many cases, it might be the best strategy. “We’re in a long-term business, and anytime you try to react to short-term crises like Japan, you end up making mistakes,” Carlton says. “I try to reinforce with clients that the things we buy we’re looking at owning for three to five years.”

Those rules held for many wealth advisers in the early days of the Japanese crisis.  But as the event unfolded, many firms made adjustments to their portfolios to take advantage of newfound opportunities.
“Great upheavals and crises tend to spur innovation and change,” says Lee Corey, a wealth adviser and senior vice president with Morgan Stanley Smith Barney in Alexandria. She manages about $500 million in assets and was 14th on Barron’s Virginia list. The Japanese crisis could “spur innovation in disaster preparedness, nuclear power plant construction and building design, as well as medical treatments for exposed individuals,” she says.

In anticipation, some firms are betting on large construction companies and industry sectors helping to rebuild Japan. Goetzman, for example, favors investments in emerging markets that might participate in the rebuilding, including China, India and South Korea.

Disasters like the Japanese earthquake are tragic events that entail unthinkable human suffering. They also inevitably have “a negative impact short-term on markets,” Carlton says. “But if you’re willing to go against the tide, they will create opportunities” for wealth advisers and their clients.

“It’s what you do in the middle of a crisis that separates you from the pack,” he adds. 

Barron’s chart of Top Wealth Advisers in Virginia


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