We occasionally part ways with clients, and the reasons for doing so vary. Some move away and prefer to find a new advisor closer to where they live. Some pass away. Some realize after some time that we’re not a “good fit” for them. While we never like to lose clients, we also don’t expect to retain 100% of our clients either. That’s not realistic.
But sometimes when a client leaves, we feel the reason may have been a “failure to communicate”. We experienced one such situation in April 2016.
That month, we held an annual review meeting with clients for whom we had done robust retirement planning and for whom we managed investment and retirement accounts. The couple were in their late 50s and were looking forward to retirement.
During our review, these clients expressed their concerns about the global economy, the US stock market and their portfolio, as they had several times in the months preceding the meeting.
You might remember that, in the spring of 2016, the presidential election was heating up. The stock market had been fairly choppy, with a sell-off in the first part of the year and then a recovery in the spring. But neither event was a major movement of the market. Our client, Bob (not his real name), told us with some conviction that he felt the economy was headed for a recession, and the stock market would soon follow with a major decline. When we asked him to articulate why he believed this, he referred to informal conversations he had been having with work colleagues, but struggled to provide any real reasons. His wife, Julie (not her real name), didn’t say much during our meeting, but it was clear that she was concerned as well, reflecting her husband’s anxiety.
We asked Bob and Julie if they wanted to temporarily reduce their portfolio’s riskiness, by decreasing their exposure to the stock market and increasing their exposure to bonds and cash. They said that they wanted to get out of the market entirely, and move their portfolio completely to cash.
Now, this is not the first time we’ve had an experience like this. Candidly, these situations are very challenging, because as advisors we have a fiduciary and a moral duty to do always do what’s right for our clients. We knew that Bob and Julie’s retirement plan only worked if their portfolio maintained a moderate exposure to the stock market. We also know that when clients totally bail out of the market, it’s generally very difficult for them to get back in. So, we always endeavor to keep our clients invested, and to assure them that – even if the stock market experiences a major correction – their plan will work, as long as they remain invested and allow their portfolio’s value to recover. But, we also know that clients have to do what they feel is “right” for them. That’s true even when we know it’s not in their best interest economically.
We couldn’t convince Bob and Julie to follow our advice. So, we made the difficult decision to resign as their advisor, and showed them how they could instruct the account custodian to move their investments to cash.
Since then, we’ve wondered if we could have done more to calm their fears and keep them invested.
We recently reviewed the performance* of the model portfolio that reflected Bob and Julie’s investment strategy. For the 3+ year period from April 1, 2016 through July 31, 2019, that model portfolio returned an annualized 7.26%.
The economy did not enter a recession and the stock market did not crash. Of course, both will likely will happen at some point in the future.
This is a cautionary tale. It’s easy to let our emotions to get the better of us and lead us to make poor financial decisions. At Springwater, we’ll always endeavor to help you manage your emotions and make wise, forward-looking decisions about your finances.
* Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Springwater Wealth Management, LLC (“Springwater”), or any non-investment related content, will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
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