For financial advisers, time to soothe the clients
BROOKLINE - Stephen Johnson, a financial consultant for Charles Schwab & Co., thought he had come up with the perfect way to spend a quiet Monday in August: Lunch with a client at a seaside restaurant.
But Wall Street didn’t cooperate. The Dow Jones industrial average plunged 635 points that day, the biggest drop since 2008 and one in a recent series of wild days in financial markets. Johnson canceled the lunch meeting and instead spent 13 hours in the office, calming anxious clients.
Typically, August is one of the slowest months for investment professionals as traders and large investors leave Wall Street for the Hamptons or other vacation spots. Not this year.
Concerns about the European debt crisis, a sluggish US economy, and the downgrade of the nation’s credit rating have thrown the markets into turmoil, forcing financial advisers and money managers to swing into overdrive to soothe customers watching their nest eggs shrivel.
So far this month, the Dow has experienced a half-dozen swings of 400 points or more, and most analysts say the ride is far from over.
This is when financial advisers earn their money. Financial companies said they have been flooded with calls from worried clients wondering what to do next. Schwab, for instance, said its usual late-summer call volume doubled last week.
Johnson said one client has called three to four times a week. Another called the day the market dropped more than 600 points and wanted to sell as much as $50,000 in stocks to quickly raise extra cash. “She felt like she needed to do something,’’ Johnson recalls.
Uneasy customers have flooded the phone lines of other financial companies. Call volumes at TIAA-CREF, a New York firm that manages workplace retirement services for 3.7 million people, have risen this month by as much as 20 percent to roughly 96,000 a week - the most since the 2008 financial crisis.
Romano Richetta, a TIAA-CREF senior vice president who oversees the call centers, said investors have been asking how recent market events might affect their savings, wondering how to respond. “They don’t know what to do,’’ Richetta said.
Fidelity Investments in Boston has answered with a series of briefing papers on recent market developments, posted videos on its website, and held conference calls for customers with key managers, including Robert Brown, who manages the company’s money market funds, and Brian B. Hogan, who oversees stock funds.
“We’ve tried to put as much information out from our fund managers in as many different forms as possible,’’ said John Sweeney, executive vice president of planning and advisory services for Fidelity.
Fidelity, TIAA-CREF, and Schwab offer similar messages, urging investors to stick to their long-term plans, making sure they have the right mix of investments to meet their goals and risk tolerance.
Last week, Johnson and his partner contacted most of their 200 regular clients and spoke to nearly half of them. Some were so shaken they wanted to sell all their stocks, partly because they have strong memories of the Lehman Brothers collapse and market free-fall that sliced the Dow Jones industrial average by more than half.
“The first thought that everyone has goes back to 2008,’’ Johnson said.
Even Johnson, a former schoolteacher and lawyer who normally exudes an air of calm, has been unusually preoccupied with the stock market lately. He checks stock futures on his iPad before going to bed and checks markets as soon as he arrives in the office at 6:15 a.m., after a 45-minute drive from his Leicester home.
Johnson said most investors can’t afford to abandon stocks. Though US Treasurys, money market funds, and bank accounts are more stable, Johnson warned that they probably won’t even earn enough interest to keep up with inflation. Ten-year treasuries, for instance, are yielding just over 2 percent.
Still, said Johnson, “You have to realize it’s our clients’ money. Everybody has to have a portfolio they can sleep with comfortably.’’
For Johnson, much of this feels like deja vu. This is the third downturn since he became an investment adviser with Schwab in 2000. First came the dot-com crash. Then the financial crisis and Great Recession. And now the latest fears over national debt and a possible double-dip recession.
“It’s extraordinary,’’ Johnson said. “Since 2000, we’ve seen three of the largest bear markets in history.’’
This time, however, most investors have left investments alone or made only small changes, according to financial firms. Vanguard Group, of Valley Forge, Pa., the nation’s largest mutual fund company, said only 1 percent of retirement plan participants have changed allocations in recent weeks.
Advisers offer several explanations. For one, many investors with 401(k)s and other retirement accounts leave their investments on auto-pilot, rarely making adjustments. Second, most investors recall watching markets plunge in 2008, only to see them largely recover over two years.
Finally, many of the investors most shaken by the 2008 crash have largely stayed out of stocks - and show no inclination to jump back in. That’s even more true with the market’s terrifying roller coaster ride this month.
“It’s going to take a lot of time to get people back in the stock market,’’ Johnson said.
Todd Wallack can be reached at firstname.lastname@example.org