So who is moving clients to cash?

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Jun 28, 2008 7:08 am

After the "worst June since the Great Depression", who is inclined to move clients into "safe" stuff now? I am guessing when June statements hit, this conversation might occur once or twice. I read a good analogy to combat that request: do you want to eat better or sleep better?

Jun 28, 2008 8:01 am

I dont know, an neither does anyone else, how far down we go from here. But afte the worst June ever, i suspect we are at least due for a decent bounce. If I have clients who are properly allocated, i do nothing. And keep them focused on what we are trying to accomplish, and the time they have to accomplish it.


However, I do have clients who i have to admit, in hindsight, are not properly allocated. Folks in their 50's who are 100% equities. They are young 50's and accustomed to being aggessive in everything they do in life.  (I'm one of them). Not alot of them, just a few, but enough to make me nervous. With those folks, i look fo the bounce to rebalance to an allocation that they can live with thru good markets and bad. My Investment Philosophy is you develop a broad allocation (stocks bonds cash) that the client can live with thru good and bad, and you only change it in reaction to changes in their life, not the markets, but you do make tactical changes within those broad categories. I wouldnt do it here. (i know, i'm taking a riskby waiting. But I'm taking a risk either way)
 
Here's the other question - there are a few places (sectors) that are making money in this market. They seem long in tooth, and we all know that when these things end (like enegy, commodities, etc), they end very very badly. So when you are allocating money to the equity side of the equiation, whether its stocks, etf's etc., are you overweighting to that area, or are you cautious and just covering your style boxes. (Covering style boxes isnt working and i suspect wont work for a while)
And what about International - what is it 5 years as the number one asset class?
opinions, investment philosophies, novel new approaches, suicide?
 
 
 
Jun 28, 2008 9:58 am

I have added some (not a ton) of the US and Candian Energy Trusts paying 10% divys. I have bought a few cds for retirees. Other than that, I am hoping for that bounce and trying to keep people to stay the course. I haven't had a ton of incomig calls which is odd. I have called people ahead of time to tell them how cruddy the market is and not to freak out.

Jun 28, 2008 1:20 pm

If your book is like mine, most of my clients are over age 60 and taking some sort of distribution for their accounts. What used to work (CAIBX, Franklin Founding Funds, just about any "balanced" fund) is down 8-10% and bond funds are hovering anwhere from +/- 2% ytd. The market sucks, CNBC is telling everyone how sucky it is and how oil goes up $2 a day, and people are mostly just dazed and confused, not sure what to do. I would expect a bounce but not off to the races. I think oil has to come down and the financials have to stablize. Until then, I am glad I own WASCX.

Jun 28, 2008 1:34 pm

Then I assume you have a lot of clients still working and contributing to their accounts. They have very little to gripe about.  Anyone retired and taking distributions has every reason to be concerend.  This is one more fund I've been dabbling with:

 
http://www.rydexfunds.com/ourproducts/Productdetail.htm?csp=78356A525
 
I hate the limited liquidity and cost of most managed futures so this is a simpler way to do it.
Jun 28, 2008 1:47 pm

It's a tough market right now, as there is virtually no asset class that is really up this year (and not that anyone could have guessed in advance which one it would be), and even very diversified, conservative portfolios are down. But I think moving into cash NOW is probably the worst thing you could do. Ride it down, then miss the upswing. Probably not a smart move. We have to suck it up and face out clients. JMHO.

Jun 28, 2008 1:52 pm

Seeing that we are paid to have an opinion on the unknown, I would assume there might be another 5% to the downside which we could obviously hit real quick. The clients who ignore the noise will end up doing better in the long haul.

Jun 28, 2008 1:58 pm
Broker24:

It's a tough market right now, as there is virtually no asset class that is really up this year (and not that anyone could have guessed in advance which one it would be), and even very diversified, conservative portfolios are down. But I think moving into cash NOW is probably the worst thing you could do. Ride it down, then miss the upswing. Probably not a smart move. We have to suck it up and face out clients. JMHO.

 
My clients who own WL insurance show gains in their policy this year.  And they will in years to come.  Food for thought from an investing point of view and a long-term planning point of view.
 
And I agree, those that should still be in the market should stay in the market.  The folks that are freaking out shouldn't have been in the market in the first place. 
 
 
Jun 28, 2008 2:05 pm

VA's with GMIB's have something that has increased as well. I am sure the sales of those will go through the roof until the market turns around.

Jun 28, 2008 2:35 pm

I use VA's as a hedge, see how things are going in the four years it takes to get beyond surrender charges and assess the landscape. Even the old antiquated riders (Principal First) give clients some degree of comfort if you remind them what they own.

Jun 28, 2008 2:56 pm
Gordon Gekko:

VA's with GMIB's have something that has increased as well. I am sure the sales of those will go through the roof until the market turns around.

 
Yep.  And VAs with GMABs for those still accumulating for retirement.

And something as simple as a SPIA for some of a client's retirement assets can go a long way to calming fears when the market's in the shitter.  Combine it with some WL and you've set your client up for an income they won't outlive while maintaining a legacy for their heirs.
Jun 28, 2008 5:10 pm

I have been on another thread talking about erasing June from our memory banks. It's amazing how many fcs claim they've been bearish on the market for years and have all their clients in all sorts of fancy hedged products. I think most fcs, as evidenced by the trillion dollars they manage, have most clients in products like American Funds and are sucking wind for the last year.

Jun 28, 2008 5:28 pm

I'm waiting for the other shoe to drop. That "shoe" is the insurance industry.

 
I find it hard to believe that the insurance industry (typically large investors in mortgage securities) has escaped unscathed from the subprime mess. Whereas banks, hedge funds, broker/dealers, individual investors, etc. have caught h*ll from their mortgage security holdings. Somebody is hiding something and it will eventually come out in the wash. And I believe "fixed annuity" investors will be the hardest hit. I wouldn't put anyone in a fixed annuity, since I question the financial viability of the insurance industry, as a whole. Don't quote me their current ratings, since we all know what a bad joke the ratings are.
 
VA's might be ok, as their underlying holdings are mutual funds. However, their income and principal guarantees may disappear as their financial status implodes.
 
Someone tell me where I'm wrong in my logic, unless you're counting on some future government bailout at the first sign of trouble.
 
You may argue that you can't accurately price mortgage securities in this market. You may be right or you may be wrong. But that argument is premised on the belief that the mortgage security market will eventually get back to "normal". What is "normal" and when will it return? Maybe the market is "normal" now. 
 
The ultimate point I'm trying to get across is that maybe we should be having this conversation with FA & VA prospects. It might just keep you out of arbitration, later. Plus, no one else is discussing this with my prospects. The same may be true for your prospects, as well.
 
 
Jun 28, 2008 6:01 pm

Global bond funds are up. You can even sell some at Jones but the wholesalers can't tell you about them unless you ask....

Jun 28, 2008 6:04 pm
I have added some (not a ton) of the US and Candian Energy Trusts paying 10% divys. I have bought a few cds for retirees. Other than that, I am hoping for that bounce and trying to keep people to stay the course. I haven't had a ton of incomig calls which is odd. I have called people ahead of time to tell them how cruddy the market is and not to freak out.
 
Gordon -
Most important, whether clients are calling you all freaked out or not, is to call them
1. before they call you
2. more important, before they get their June statements!
 
I spent the day today, printing out Portfolio Reviews for all of my A and B clients, and I am calling them all Monday and Tuesday.
Jun 28, 2008 6:05 pm

An interesting note, doberman.  Not all insurance companies are created equal.  In fact, the insurance company I send most of my life and disability business to had a due diligence meeting this past Thursday.  The national sales manager of the annuity division closed out the meeting.  He addressed the subprime mess and remarked how similar it was to the junk bond scandal in the 90s (the one that brought down Executive Life).  He had stats that showed that my primary carrier has $5 million in MBSs in the general investment account.  None of them are in signs of default.  Even if they were all to go belly-up, it will not affect a $60 BILLION account.  Long story short, I'm glad that I'm at where I'm at.

 
I would be concerned with some insurance companies (mostly the stock insurance companies) who got caught up in this stuff.  You may very well see big blowups in the near future.  However, if there is one industry that would hold up one of their own in the event of a potential failure, it's the life insurance industry.  The entire industry is backed up by a promise to pay.  If one company can't pay, it goes bad for every company involved. 
Jun 28, 2008 6:05 pm

Prato, you bring up an interesting point: I think many people are finding out just how risk tolerant they are NOT this year.  This is something I've been conscious of since the start, and so far I've been spot-on with all of my clients...I'm seeing essentially zero unrest (and actually, my portfolios are pretty solid relative to the market). 
 
If you do have clients that are mis-allocated based on their age, I wouldn't reallocate them now if they have 7-10 years until retirement.  e.g. I wouldn't move money from severely beaten up asset classes to less beaten up asset classes right now.  I would take this opportunity to meet with those clients and discuss whether or not they feel their risk tolerance has changed.  If so, explain to them why you aren't going to move them now, but you plan to do so in the future. 
 
As for all of the younger people, I think there are tremendous buying opportunities in this market, regardless of what the "sky is falling" folks are saying.  Buying when blood is in the streets has been a prudent move historically, and this time is no different.
 
Ice, I agree on all points.
Cant say however, that I am not scared that we might not get that bounce till we see further declines.
Jun 28, 2008 6:12 pm
Gordon Gekko:

Then I assume you have a lot of clients still working and contributing to their accounts. They have very little to gripe about.  Anyone retired and taking distributions has every reason to be concerend.  This is one more fund I've been dabbling with:

 
http://www.rydexfunds.com/ourproducts/Productdetail.htm?csp=78356A525
 
I hate the limited liquidity and cost of most managed futures so this is a simpler way to do it.
 
Rydex Mgd Futures is a good fund for this environment. Add it to a core of WASAX and MDLOX, and you've got low corellation to the market. Question - when do you go back to more traditional funds? Because in a bull market you'll underperform. Especially if the bull market is sparked by a rising dollar and falling commodities and Intl markets.
Jun 28, 2008 6:13 pm
PSS - We aren't paid to have an opinion about the unknown, we are paid to have a plan for the unknown.
 
Gordon - what an awesome quote. I am emailing to my office email addess.
Jun 28, 2008 9:06 pm

Great thread guys!  I am worried for my pre-retirement clients.  I have been allocating about 30% to VA's which have their guarantees for the long run.  I have mutual funds for the intermediate-long term.  Some of the value funds have gone down of course.  Prato, just like you, I'm waiting for a bounce to reallocate to more of a market neutral fund. 

 
Long term clients, I'm telling to buy more now.  But the ones that are 1-2 years from retirement worry about a market like this.  I have kept a decent allocation in cash or cash equivalent, or preferred stock to get income.
 
At some point the market will turn around.  We just don't know when.  I believe we are paid to not sell out and act like average investors, but it is tough to "stay the course" and wait for the bounce when we are just bleeding and bleeding. 
 
I've been drinking a little bit today, so don't quote me on this.  But for my pre-retiremnt clients, I feel like the market has done about -10 to 12% YTD, and their accounts are down about 4-5%.  So it's not terrible,, but come on, this shit has to end sometime.
 
How do you spell silo?  I don't know, but I take that approach.  We'll see.