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| Adrian Mastracci, an advisor
at KCM Wealth Management, turned down a potential
client: "I could never live up to his
expectations. A 150% gain in the next six
months to a year is not going to happen."
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By: Jim Middlemiss
National Post
FP Money
Saturday, July 13, 2002
How frazzled brokers deal with the deluge of calls from worried
investors will test them to the limit.
When a potential client recently called Adrian Mastracci
bemoaning the loss of 60% of his portfolio, he was looking for an
advisor to get him out of the mess. However, Mr. Mastracci, a fee-only
advisor at Vancouver's KCM Wealth Management Inc.,
politely declined the assignment.
"He was looking for a turn-around guy," Mr. Mastracci
says, someone who could quickly recoup his losses. "I could
never live up to his expectations. A 150% gain in the next six months
to a year is not going to happen."
Managing client expectations are tough at the best of times for
financial advisors, but when the markets go south, it can really
test their mettle, especially following a long period of rising
markets, where everything the advisor touched turned to gold.
Now, however, markets are entering the third year of a downward
spiral. According to the Investment Dealers Association, the number
of broker-dealers suffering losses are up 130%, employment is down
1% and commission revenue in the first quarter is off 10% from a
year ago. Factor in plummeting indexes and it's a volatile mix that
is enough to make a broker want to take two Prozac and call their
shrink in the morning.
Arla Day, a psychology professor, says "at the best of times
the brokerage industry can be a stressful environment." Bad
markets only exacerbate the problem. "[Brokers] can't control
the market and can't control a lot of aspects of their jobs."
That leads to them feeling "anxious and depressed. The younger
ones who haven't gone through it might find it overwhelming."
Rather than spending their day consoling disappointed clients,
many brokers are leaving the business.
Where are advisors going? "I don't know -- working at home,
Home Depot? I don't know but they're leaving the business,"
says Whittier Skaug, an advisor.
Others "hunker down" and wait out the market storm, ignoring
clients who eventually flee to other firms, leaving the advisor
to work "with whatever is left, while they wait for the next
boom to happen," says Kevin Cork, a branch manager and financial
advisor.
Jody Eisenman, CEO of a 35-broker firm, has his own strategy for
facing the music.
Each day he singles out the one client that he expects will take
the news "really badly" and makes that his first call,
levelling with the client and using stop-loss orders to numb the
pain. "Once you get that call out of the way, the others are
easier."
Clients want to know "why they're not making money" and
it's his job to explain what's happening, he says, noting that such
calls are "difficult" to make.
He tries to contact clients on a weekly basis and reassure them
that markets go up and down.
"There's no sure fire way to address those problems,"
he says. "The best thing you can do is give them what you believe
is the best information and then let them make their own decisions
based on their own risk profile."
For many brokers, though, the initial tendency is to turtle in
the face of making such calls. A lot of brokers are "shell-shocked
and don't want to talk to clients any more," says Mr. Eisenman,
whose firm caters to overseas clients looking to invest in the United
States.
"Brokers really believe they did the right thing every day,"
yet their clients have still lost money. They have to remember,
he says, that "whatever happens, they can't control the stock
markets. If a broker can't handle a drop in stock prices, they shouldn't
be a broker."
Ignoring your clients is the worse thing a broker can do in these
times. "Don't sit back, you've got to proactively talk to people,"
says Mark Kinzel, senior vice-president. "If no one talks to
me, I get frustrated."
It's also the time to "preach patience," he says and
move the client's attention off the short-term noise and on to the
long-term financial plan that the advisor hopefully has in place.
That helps the client focus on the future, not the present.
Don Bridgman, an advisor, agrees the key to surviving tepid markets
is focusing on the long-term and being "strategic, rather than
tactical."
A healthy dollop of conservative investing doesn't hurt either.
"Then it's just the matter of reinforcing and staying the course
and sticking with the philosophy."
He says advisors and investors who "ignored the downside of
risk," didn't create financial plans and who are "highly
leveraged -- they're the ones in trouble."
Mary Chan, an investment representative, says brokers need to remind
clients that markets are cyclical and are known to bounce back.
Ms. Chan, who has been in the business six years, says she has one
couple who "got scared and bailed out" in the 1987 recession
and lived to regret it. This time, she says, they are staying the
course. "The longer trend for the equity market is to move
upwards."
For Mr. Cork, "it's all about managing their emotion."
That means "bringing clients down when they're too pumped
up" and lifting their spirits when they get "really suicidal,"
which he does by sending market commentary that is positive and
offsets the negative, flavour-of-the-day hype in the media.
Brendan Caldwell, president and CEO, says clients still have money
to invest and brokers have to remember that equities are only one
thing they can sell. Bonds and fixed income products can act as
a salve for equity wounds by providing some gains and helping temper
negative reactions to portfolio performance. "We've had a great
success in selling bonds to clients."
Advisors are also seeing some support from the manufacturers of
financial products. Mutual fund companies are busy cranking out
literature for brokers to use to soothe frayed nerves, ranging from
market commentaries to reasons for continuing to invest.
Chisholm Lyons, vice-president of marketing says a new brochure,
touting reasons to invest "is the most popular piece we've
ever created. It's been flying off the shelf."
The firm has also produced a booklet on dealing with volatile markets,
which preaches diversification and staying the course, and has stepped
up its communication to advisors, providing more market perspective
commentary.
Dwayne Dreger, vice-president of communications at, says his firm
is making sure that advisors get "information on product and
markets as quickly and accurately as they can."
It also has a tool kit stressing diversification and providing
tax info.
Mr. Eisenman also thinks this market provides a good dose of reality
for a generation of advisors who have largely operated unscathed
by a vicious bear. He survived the market crash of 1987 and says
he came out a much better broker.
"Any broker who survives this will be a much stronger person
and have a much healthier attitude towards this business."
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