From improving communication with clients to placing a bigger emphasis on risk management, advisors share how they’re navigating the rebounding market environment and how their practices have evolved as a result of hard lessons learned during the financial meltdown of 2008.

See this blog post in slideshow format here. 

1. Jason Katz, UBS Wealth Management Americas – New York, NY

The financial calamity shook most clients, advisors and investment firms to their core. My biggest takeaway is that when it comes to investing, NOTHING can be taken for granted. My biggest learning moments from the experience were:

  • Don't rely solely on what other people say or what has happened historically.
  • Every product, regardless of how "safe" it is, has to be personally researched and understood.
  • Many clients and advisors don't understand risk until it hits them.
  • It is important to define what risk means to you and your clients BEFORE money is put to work.
  • Any return over the risk-free rate comes with a trade-off and incremental risk, clients must understand that upfront.
  • Having a long term game plan is the ONLY way to weather a crisis.
  • Even though there are periods where diversification hasn't worked, over the long run it's the only way to reduce the volatility of returns.
  • "Set it and forget it" doesn't work. Clients must strategically rebalance.

2. Ronya Corey, Merrill Lynch Wealth Management -- Washington D.C.

The 2008 financial crisis has served as a reminder to revisit the basics with each individual client to determine their goals and redefine what risk means for them. I focus on making sure that my clients keep their long-term goals in sight, that they do not make rash decisions based only on the current “noise” of the market and the here and now. Although those conversations are important and relevant, each person needs to plan according to their future goals. For example, retirement wishes should be a part of every discussion, and as their advisor, I help push each client to think of the years far beyond today. To successfully accomplish this, I urge my clients to address their asset allocation in terms of risk when we are reviewing their financial plan. We need to discuss their “worst case scenario” to ensure that they can handle the unexpected financial situations that life sometimes hands us. I work closely with each individual to discuss and review the actions they may want to take to ensure that they are best positioned for growth opportunities while appropriately managing risk in today’s environment.

3. Marilyn Littlejohn Schmitz, Raymond James -- St. Petersburg, Fla.

I saw the 2008 crisis as an opportunity to grow my business. Since I started in the securities industry in 1987 after Black Monday, I knew there would be clients who were not being well-served by less experienced advisors who were hiding under their desks. I scheduled monthly client open house forums for the next two years to get in front of clients and referrals. It has paid off extremely well for my practice.

4. Jeff Runyan, Wedbush Securities -- Beverly Hills, Calif.

I’ve learned that investors have short-term memories and that returns in robust times may lure even the most rational minds to depart from intended goals of safety and prudence. I’ve observed that the departure from safety is often due to emotionally exciting market movements. I recall from the financial implosion of 2008 that even investments with perceived safety and certainty can -- in a time of financial crisis -- not be immune to unwelcomed pricing vagaries.

What I’ve done post-crisis is continuously and conscientiously remind clients that while the market may be up, it can easily and rapidly go down. These days, we’re adjusting expectations and more clearly outlining potential declines so it’s not as shocking if the printed value on a statement is less favorable.

5. Rick Ashcroft, Robert W. Baird. & Co. – Houston

Most of our clients are retired and living on their investments, which was also true prior to the crisis. What we noticed in 2008 was that clients who had an investment plan and income strategy that addressed the possibility of periods of very poor performance tolerated the crisis far better than those who didn’t. When people transition to retirement, they often think that working with a professional will largely insulate them from poor results. We have learned to make clear to them that it won’t, but if we plan for disappointments, those episodes need not jeopardize their long-term goals.

6. Rob Brewer, Raymond James -- Lexington, Ky.

The financial crisis of 2008 was one of the toughest experiences of my 21-year career as an advisor, but it has truly made me a better one, particularly in terms of communication. We know that the “prudent man rule” has always been rule #1. Know your client and don't get them into anything they shouldn't be in.

That being said, we have to remind clients that markets that go up 20% can pull back just as far, and so we need to communicate constantly so that they don't make poor decisions in the next down cycle. I truly believe better days lie ahead for our markets but there will be plenty of volatility along the way and it is our job to help clients stay focused on their long-term goals, while communicating continuously.

7. Dan Torbeck, UBS Wealth Management Americas – Cincinnati

In the 2008 crisis we had just a few clients who incorrectly went to cash in late 2008/early 2009 when the market lows were being reached. Based on client feedback here are two changes we have implemented since 2008 to help prepare clients for the next downturn.

  • In the client financial planning sessions, we have begun to introduce a subtle but very important change when discussing the client's income needs. Instead of asking the client to provide one annual income figure we ask them to identify this figure in terms of needs, wants and wishes. This helps clients clearly differentiate between essential expenses (needs) and those that are lifestyle expenses (wants and wishes). The purpose is to introduce an element of annual income flexibility in the planning process if we experience another crisis.
  • We switched to an alternative investment platform that enables our team of CFA's to make more timely portfolio strategy executions/adjustments, better control expenses through the use of ETF's/Individual stocks/bonds/mutual funds and allows for proactive risk management via hedging strategies when necessary.

8. Colleen Schon, Raymond James -- Clarkston, Mich.

I have learned that client expectations have differed since the crisis. What used to be about beating an index return is now about asset allocation and protecting their assets rather than just a return. Having double digit returns are nice but not as important anymore. Having a good mix of income sources along with consistent growth has become much more important to my clients.

9. Patricia Estopinal, Robert W. Baird. & Co. -- Roseville, Calif.

As a financial advisor since 1985, I’ve seen many market cycles, including the 22% one day drop on October 19, 1987, and the tech bubble that burst in 2000. But, no market disruption comes close to comparing to the financial crisis of 2008; the impact on my clients, both emotionally and financially, was unprecedented. My approach to asset management, in this current market and always, has been to emphasize diversification into my clients’ portfolios (i.e. commodities, REITS, emerging markets debt and equities, etc.). But, after the crisis of 2008, I focus even more today on risk management, both on the equity and debt sides. An important part of my portfolio construction now incorporates alternative investments.

10. Richard Cardin, Benjamin F. Edwards & Co. – Atlanta, Ga.

The biggest change for me over the past five years is my clients taking a more active interest in their investments and their overall financial situation. I have always felt it is important to proactively discuss portfolio risk versus reward. Prior to the Great Recession the concept of risk was an afterthought for many clients because they believed portfolio growth was a given – just as many also believed their home price would always increase.

Since the crash, my clients definitely recognize the benefit of understanding the risk/reward concept and why it is important. They realize that markets don’t always go up and they want to be prepared for the next downturn. My client’s don’t just take their statements and file them away anymore. They want to review their portfolios with me and understand how the pieces fit together to complement each other.

These discussions help my clients better understand the markets, allowing them to clarify their true investment objectives, and in turn more clearly communicate their goals. With this clarity I can better manage their expectations in good, as well as difficult, markets.

11. Malcolm Liles, Robert W. Baird. & Co. – Nashville, Tenn.

Though we’ve been doing it all along, the most important lesson that was reaffirmed for us during the crisis is to stick to the fundamentals and practices that have always worked. The trouble starts when a client doesn’t understand their investments or have clear communication with their advisor. If a client is honest about their risk tolerance and holds a broadly diversified and liquid portfolio with a trusted advisor who will tell them what they need to hear, rather than what they want to hear, they should feel confident that their portfolio can withstand market volatility over the long-term.

12. Peter Eckerline, Merrill Lynch Wealth Management -- Minneapolis, Minn.

We have worked to strengthen relationships with our clients in the past several years, and have increased communication with them on multiple levels. We are conducting more performance reviews and asset allocations with discussions centered on risk and return. We are meeting with clients in person more often, and having more conversations around planning and goals-based wealth management, rather than just relative returns. We find that clients who have been through the economic downturn are more risk averse, so we’re having more discussions about risk – not just due to a market downturn – but also with regard to the ratio allocated to fixed income. This has had a nice run for a number of years, but may potentially suffer if rates increase in the future, which is likely as the Federal Reserve tightens. For this reason, we want to ensure our clients have an allocation to stocks which may continue to perform well in the future.

13. Lauri Droster, RBC Wealth Management -- Madison, Wis.

Of course 2008 and early 2009 were painful for everyone. It was our job to calm investors down and help them not make poor decisions that were going to affect their financial future. I have always had a healthy percentage in bonds in my clients' portfolios, and it certainly was difficult to convince clients to stay the course when they were seeing their bond portfolios go down in value along with the stocks. That was really unprecedented and very scary for people. Looking back, we had some incredible opportunities to buy bonds (and stocks) at prices that, a couple years later, were showing huge gains. The other opportunity was switching mutual funds in order to harvest capital losses for the tax benefit. That way, at least clients felt like they were getting some of their money back. Even though we're going to have potential losses on bonds going forward, I think clients still have to have bonds in their portfolio for the income generation. Bonds went down in 2008, but they still didn't go down as much as stocks.  

14. Dennis Anderson, Benjamin F. Edwards & Co. – Woodstock, Ill.

First, I spend much more time discussing market volatility, and how long-term averages tend to mask the very real emotional impact of events like those that occurred in 2008 and 2009.  At the same time, however, I remind clients that once again, even after one of the worst pullbacks since the Great Depression, those who stayed the course and did not sell in panic have generally been rewarded.

Finally, asset allocation based upon modern portfolio theory did not, at least in the short-term, offer meaningful downside protection in 2008 and 2009, as most asset classes were hurt significantly (except for Treasury securities) and almost to the same degree. While this may have been a one-time event, I now suggest that many clients consider supplementing (not replacing) their strategic asset allocation models with alternative investments and tactical asset allocation strategies.

15. David Nethery, Merrill Lynch Wealth Management -- Dallas

The 2008 financial crisis taught our team to keep clients strategically focused on their personal financial goals. Our approach is focused on helping clients achieve the results they desire, rather than just the process of creating a financial strategy. We have always used the client’s “investment personality” to tailor our personalized approach to portfolio management and the frequency and form of client communications. Our clients feel their money has a job to do. It’s our responsibility to put their money to work toward achieving their goals in a way that fits the emotional and rational sides of their investment personality. Overall, we have significantly stepped-up our face-to-face meetings.

16. Edward Stike, RBC Wealth Management -- Charleston, W. Va.

The financial crisis made me realize that, as an investor, you can choose to take more risk or less risk but you must take some. You can't eliminate risk. Risk is like matter, it is an inextricable part of investing. Risk, however, can be managed. The financial crisis made me realize that "proper" risk management is essential to your portfolio's health.

17. Joe Watson, Janney Montgomery Scott – Mt. Laurel, N.J.

I entered the financial services industry in 1984. By 2008, I had lived through all types of markets. During the financial crisis of 2008, diversification and risk management were put to the test. The events of 2008 proved the importance of the following strategies:

  • Be alert for bubbles in various asset classes.
  • Be diversified and try to hedge your risks.
  • Understand that in times similar to the “Great Recession,” multiple asset classes can get hit simultaneously.
  • When a financial crisis happens, do your homework and formulate a position. Then communicate with your clients — this is when your services are most needed.
  • Have a written contingency plan, and adapt it as needed to the developing circumstances.
  • Offer clients a three-part scenario: worst case, best case, and most likely. Your guidance should help bring clarity and order to the situation.
  • Finally, it’s important to be a student of economic history. Bubbles and financial crises have been with us throughout time. Never underestimate their impact as we know there will be more in the future.

18. Ruth Kitzman, RBC Wealth Management -- Milwaukee, Wis.

The financial crisis five years ago truly should have reminded all of us how important it is to have our "house" in order. By "house" one could include debt, investments, diversification and risk tolerance to list a few items. Communication has been key. Staying in contact on a regular basis with clients is of utmost importance I believe. Talking to the clients once every five or more years just doesn’t cut it for either party - the financial consultant or the client. It seemed to me, although the market was moving all over the place, the clients understood why the statements read the way they did. As a result, some needed to review their risk because talking about it and seeing it provided a bit more reality. It made things more "real" to the clients. It most certainly has made them more aware that the markets do move around and diversification is key within their risk level tolerance. 

19. Robert Clark, Janney Montgomery Scott – Danvers, Mass.

When bull markets last for longer periods, clients often believe they can tolerate more risk. Instead of worrying about their financial goals, they start tracking their portfolios relative to an index. Targeting an index such as the S&P 500 may seem smart when the market is rising, but I have yet to meet a person who is thrilled when the index is down 37% — and they’re down “only” 36%. We spend a lot of time reminding clients that the purpose of investing is to fund the financial goals they’re trying to achieve: retirement, a vacation home, or a family legacy. 

When the market is doing well, it makes sense for retired clients to set aside enough cash to cover spending for the next 2-4 years. That way, if a bear market then follows, they will likely have enough cash on hand to allow their equity investments to recover. We also remind clients that diversifying their investments for the long-term is critical to minimizing risk.

Finally, we have discretion in managing most accounts. This allows us to proactively make portfolio adjustments — to the satisfaction of our clients — in what can be deemed a fast-moving and emotional market. As always, communicating with clients is essential to helping them through market fluctuations, both good and bad. We’re here for them through the ups and downs, to keep them anchored and focused on building and preserving their wealth.    

20. Rhett Neuman, RBC Wealth Management -- Stillwater, Minn.

The financial crisis was a very emotional and stressful time to be an advisor. Having the financial livelihood of so many people in my hands brings with it great responsibility. We actually saw an uptick in "do-it yourselfers" coming to us for help as they were truly scared of what the markets had done to their portfolios. They realized having some guidance or a "teammate" now made sense.

The crisis made me re-think traditional strategic allocation. As my practice continued to expand with baby boomers and their need for generating retirement income, the question became: "Do I need to be more tactical in order to eliminate drawdowns of 35% or more in the equity portion of our portfolios?"  Even our most consistent allocation models, typically a 60/40 split between equities and fixed income,  had a hard time escaping a 20% drawdown in '08.

Client reviews were tough, to say the least, but most clients (with some persuasion) stayed the course. The message from most was "if we get close to where we were, I want to be more proactive or conservative going forward." In other words, "I don't want a buy and hold 'strategic' strategy. I want a 'tactical' strategy and I am willing to give up some of the upside if I can get to the sidelines when things get choppy." Our media has helped with this outlook and developed the new term: "The Risk Off or Risk On Trade."

With interest rates coming down, generating enough income to meet the goals of clients has become very difficult if one wants to stay in the fixed income (bond) world. It has forced many to look at alternatives for income generation. These alternatives may have more risk than traditional bond buyers are accustomed to.

The market of today feels so different than that of the past and we are evolving as advisors to adapt to this new change. I hope we're a long way away from another 2008, but fear the "running for the door" mentality that a hiccup in the market may cause.

21. Peter Princi, Morgan Stanley Wealth Management -- Boston, Mass.

The Financial crisis of 2008 taught us that building in downside protection and diversification for client portfolios is more than an academic exercise. We believe these principals are the foundation of asset management and a catalyst for more consistent long term performance. Our client communication focuses on the importance of understanding risk and how the correlation of asset classes impacts portfolios. Since 2008, the team has transitioned more client assets to a discretionary money management platform that allows us to be more nimble.  In addition, we have enhanced our analytical capabilities with key hires including a CFA. Now as the US equity markets make new highs we are seeing client’s appetites for risk begin to grow once again.  We are getting ahead of it by reminding them of the events of 2008 and reiterating why they have their current investment strategy.  Moreover, we speak to the dangers of allowing emotion into the investment process and focus our conversations on client's short and long term goals while continuing to educate them on how various events in the global economy affects their overall portfolio.

22. Alan Whitman, Morgan Stanley Wealth Management -- Pasadena, Calif.

The difficulties faced by the market in 2008 and early 2009 just reconfirmed for me what I have always known and that is if it looks too easy and good to be true it probably is too easy and good to be true. As we found, the pendulum can swing both ways. It reminded me of the need to keep expectations and goals realistic and to not get caught up in the excitement of the moment. We need to remember to keep leverage in check, maintain a good degree of liquidity and to take some of our unrealized profits off the table and realize them. It is so important to keep clients “feet on the ground” and make sure that they stay true to their goals and strategy and not let the moment carry them away. Our roles as advisors are never more important than when emotions rather than rational decision making drives the investment decisions and directions of our clients. Both the up and the down cycle of 2007, 08 and 09 proved that. That is when our clients need us the most and that is when he have to be there for them. Today’s markets which thankfully are not exhibiting the same volatility and in many cases the irrationality of that time, still require our diligence and focus. 

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