Getting clients to think long-term in terms of investing is easier said than done, particularly after the 2008 market meltdown and, more recently, the May 6 flash crash, said financial advisers who attended The
Charles Schwab Corp.'s Impact conference in Boston last week.
And even with the recent pickup in the stock market, many advisers said that they don't see this challenge going away anytime soon.
In the opening session of the conference, Mellody Hobson, president of Ariel Investments LLC, chastised advisers for being too focused on short-term results.
“We are doing a disservice to investors by talking about short-term in general, and specifically about three-year returns,” she said.
But even three years can feel like an eternity for clients, many of whom are baby boomers approaching retirement, said Al Gardner, a wealth manager at DeSeranno Wealth Planning.
“Clients who are planning to retire in the next few years can't take another hit,” she said. “You can't just tell them, "Oh, don't worry, think long-term.'”
The May 6 flash crash exacerbated many investors' distrust of the markets, conference speakers and attendees said.
The Dow Jones Industrial Average dropped 1,000 points that day, though it rebounded within minutes. Most of the affected trades were later canceled, but the event still left its mark on investors' psyches.
Although the event didn't cause investors to pull out a lot of money, it “certainly exacerbated the idea [for investors] that "the market is against me,'” Liz Ann Sonders, Schwab's chief investment strategist, said during the opening discussion.
Instead of just telling clients to think long-term, Mr. Gardner and his colleagues are working with clients more around reaching their target “number” or amount of assets that they need to live comfortably in retirement.
“We talk about getting to that number and reducing risk so they can maintain it,” he said.
Getting clients to think long-term is a big challenge for advisers and Schwab, Peter Crawford, senior vice president of investment management services at the company, said in an interview.
“We see a lot of clients who are anxious or think that the market is broken, or look at the flash crash and say, “This means it's stacked against me,'” he said.
The fact is that most investors never looked at their statements when the markets were good, and now they look at them all the time, said Gary Y. Yarus, president of Diversified Capital Corp.
“My clients are only interested in what their portfolios did that week,” he said.
To help mitigate this short-term thinking, Mr. Yarus has started putting his monthly market commentaries in the context of a more long-term outlook, he said.
Even clients who say that they think long-term don't necessarily do so, said one adviser attending the conference, who asked not to be identified.
“They will say, "Oh, yes, we will stick with it,' but then the minute things turn around, they panic,” the adviser said. To address this, the adviser makes sure to screen all potential clients to make sure that they can remain disciplined investors during difficult times.
“But even that's not foolproof,” the adviser said.
Some advisers such as Tom Lydon, president of Global Trends Investments, have decided that the buy-and-hold philosophy is outdated.
“Ten years ago, 80% of advisers' portfolios were buy-and-hold,” he said. “Today, that's 30% — it's much tougher to make money these days.”
E-mail Jessica Toonkel at [email protected].
