Wealth advisers temper client inclinations toward greed and fear

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by Aaron Kremer

Wealth advisers who have been around awhile probably have stories like John Verfurth’s.

The time was the dot-com boom of the late 1990s. The stock prices of many companies with ambitious plans but no profits were soaring to the heavens. An elderly client called Verfurth, a Morgan Stanley adviser in Vienna. She was wealthy but never had been one to be wasteful or impetuous.  Now she wanted to buy 1,000 shares of a high-tech stock
trading around $300 a share.

“I asked her, ‘Are you sure?’” Verfurth says. Turns out she wasn’t so sure, but everyone seemed to be making a bundle, and she wanted to hop on the gravy train. Verfurth eventually talked her into buying only 10 shares. The stock soon plummeted to a few bucks per share losing 99 percent of its value.

Many wealth advisers in Virginia have clients who, if left to their own devices, might pull a move similar to Verfurth’s client — buying at the top when the hoopla is the loudest and selling at the bottom when despair spreads like a dark cloud.

In fact, some advisers can almost time the top and bottom of markets like clockwork based on certain clients. Just a year or two ago, advisers were hearing about how condos in Miami were a huge investment opportunity. Now they’re hearing talk about how renewable energy will be the next big thing.

The particulars change, but the moral of the story is always the same. Many clients get greedy when stocks rise and become terrified when they’re down. An experienced wealth adviser acts as a voice of reason, trying to protect the client’s principal while averaging modest annual gains, somewhere in the 6 to 8 percent range. 

But if the late 1990s was a time to warn clients against too much greed, the current economic slowdown might be a time to reassure them that the world is not ending. “A good adviser can talk a client out of fear,” Verfurth says, adding that the job often involves balancing fear and greed.

List compiled by author
For three years in a row, Verfurth and his partners in the VWG Group at Morgan Stanley — Jeffrey Grinspoon and Richard Weeks — have been ranked by R.J. Shook among the top wealth advisers in Virginia. Shook, a former adviser, is the author of “The Winner’s Circle” series of books on wealth management and has compiled national and regional lists of top advisers for many publications, including Barron’s and Virginia Business.

The 2008 Virginia Winner’s Circle includes 50 advisers and wealth management teams. Forty-five advisers primarily serve clients with high net worth (more than $1 million) or ultra-high net worth (more than $10 million). Another five advisers serve retail clients with net worth of less than $1 million.

Many Winner’s Circle advisers gathered at The Jefferson Hotel in Richmond at the end of April to talk about best practices for the industry. Across the board, they said their goals for clients are not to hit home runs but to protect wealth, and plod along slow and steady.

Randy Beeman, one of 14 new members of the Virginia Winner’s Circle, says he sits down with investors to determine their objectives. He manages $1.7 billion in assets at the Wise Investor Group at Robert W. Baird & Co. in Reston. The meeting with clients “helps remove the fear. They’re able to see that — well — they don’t need 15 percent returns every year. They can get there if they get a consistent 7 percent and remove most of the volatility,” Beeman says.

He sees growth opportunities in some of the 50 large-cap stocks his firm monitors. “One of the strengths we bring to clients [is that] we do the analysis,” Beeman says. “We understand what makes the business tick. We’re able to see what we really own.” Lately Beeman has been adding American companies with international exposure.

Another new member of Winner’s Circle is Willcox Bailey, a manager with UBS in Norfolk. He likes the U.S. stock market in general, particularly large companies, and avoids hedge funds because of their fee structure. Bailey doesn’t pick individual stocks, instead using professionally managed separate accounts or mutual funds, depending on the client. “When
we’ve seen a couple of spikes down, we’ve added marginally to the equity side,” he says.

Commodity funds as a hedge
Many of the other wealth advisers on the list avoid stock picking altogether and instead pick mutual funds or money managers while working with an asset allocation model. Two years ago James Barnette, an independent adviser with Raymond James Financial Services in Sterling, introduced commodity funds to his asset allocation model to help hedge
against the rise in energy and commodity prices — which could sap the earnings as well as consumer spending.  “The more diversification we have, the steadier [the portfolios tend to be],” Barnette says. “[The commodities funds] gave us a little boost when the stock market was going through a weak period.”

His clients span the globe, and he travels seven or eight times a year to visit them. Many started out living in Northern Virginia but then moved abroad with their companies. Barnette believes that living outside the U.S. gives investors an ironic advantage because they are less exposed to financial TV programs and are less likely to be nervously checking their
portfolios daily. “Here in the U.S., you turn on the news and the lead stories tend to be the economy in recession,” Barnette explains. “Working with people overseas, they’re removed from the day-to-day information bombardment we have here, and they tend to be more patient.”

Brenda Blisk, meanwhile, says that the constant flow of news via the Internet and TV has increased volatility. Blisk manages $250 million in assets with the McLean-based Blisk Financial Group at Spire Investment Partners. “Information travels faster, and it’s not always accurate,” she explains.

Blisk says she tries to build portfolios insulated from the wild swings in the market. “We’re big proponents of consistent performance,” Blisk says. “We’re not looking to shoot lights out; we’re looking for good returns.”

She’s also not looking to beat the market, she says. “I see myself as a coach … [Clients] need a good coach to help them through the training, and the ups and downs of winning.” She recently made some tweaks to clients’ portfolios. She’s increasing exposure to international markets and reducing exposure to large-cap domestic companies, she says.

On the other hand, George “Abie” Williams, a veteran adviser with Smith Barney in Radford, says he hasn’t made many changes to his portfolio other than to transition some older clients into safer investments. The moves had little to do with the market and more to do with clients’ changing stage of life. But some of his older clients have the Internet,
and that makes the job harder than it used to be. “We have to provide better personal advice?to the client as compared to what is available on the?Internet,” he says.

And there is at least one thing that a veteran adviser knows that the Internet doesn’t: When elderly clients start talking about buying 1,000 shares of the latest hot stock, it’s time to go to work. Greed has overcome fear. 

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