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A COVID-19 Roundtable Discussion: Advisors Address Client Concerns

Christopher N. Sorce, CFP® Ryan Furtwangler, CFP®, AEP® Augustine A. Repetto, MST, CFP®


An interview with HBKS Advisors Christopher N. Sorce, CFP®, Principal and Senior Financial Advisor; Ryan Furtwangler, CFP®, Principal and Senior Financial Advisor; and Gus Repetto, MST, CFP®, Principal and Senior Financial Advisor

Q. What are you hearing from your clients about their portfolios?

Gus: Our clients aren’t panicking because we’ve prepared them for a market downturn. If you do the hard work, are proactive, then when a downturn does come you are prepared. My team and I have been reaching out to my clients by phone and email. I am also conducting meetings via video chat.

In terms of our client portfolios, we are rebalancing throughout all market cycles to help reduce market risk. The real question is not when you should get in or out, but are you allocated correctly to meet your objectives, because that ultimately determines investment success.

Ryan: All the advisors here at HBKS operate similarly. We’ve talked to our clients about risk for years and doubled down on that coming out of 2008 and 2009. We’ve been preparing our clients for a correction for a couple of years, not because we are market timers, but because things don’t just go straight up. Our portfolios are incredibly well-diversified and designed to ride through storms but preparing the clients that this is part of the plan, in advance, is key. There were several things at the forefront of our thinking including an overly long bull market, international challenges such as North Korea and even just simple multiple expansions. Of course, no one would have predicted the virus pandemic would be the trigger.

Often clients want to do something in a selloff, this is common and understandable. The greater the selloff the greater the “need” to do something. Accordingly, one of our first and most important jobs is to reach out to clients and respond quickly to concerns. In this process, we are reminding them that selling everything is not the right answer, instead that we planned for this type of eventuality and the plan is to stay the course. Because we’ve talked and planned over time, they know that. I have had very few calls with clients wishing to cash out, which is a testament to the firm’s continued discussion on risk management and staying the course. Most of our clients have a good allocation of conservative assets and cash they can call on as needed. Often the cash and bonds represent years of spending allowing time for risk-based assets to recover. Most of our clients understand that we’re all in this down market together and that we are well diversified and prepared for a recovery. Also having a sound financial plan with doomsday scenarios absolutely helps and is a tenant of our planning process.

Chris: There’s a difference between a meltdown and a recession. We had a meltdown this month. Everything was down, even gold, which usually rises when equities fall. It might seem right to put everything in cash or CDs, but they don’t generate anything. After inflation you’re losing money.

Gus: The bond market has become very illiquid in this market. In many cases, traders and some investors are forced to sell good for bad because many were either over-leveraged or they need cash to cover margin calls and are now de-leveraging, which is one reason why we’re seeing so much volatility. The Fed’s announcements in March to provide liquidity to the market will be a huge help until markets return to a more normal environment.

Q. How do you build in protections for your clients?

Chris: I got calls during the previous downturn from some clients who asked me what I was going to do to protect their portfolios. I told them we’d already done in advance of the downturn what needed to be done to protect their portfolios through our investment management strategies, through diversification of asset classes and avoiding security-specific risk. We are constantly monitoring market risk, security-specific risks, and inflation risk, and we address the risks by diversifying, including an appropriate cash position. I got a call from someone who had his money with a broker. The broker had no strategy; he was just buying things, like one purchase because it paid a 5 percent dividend. We have a strategy and we’re consistent. It doesn’t mean that we’re perfect but working with a strategy in place means that we’re likely do better than just winging it. That starts with a financial plan. Ninety percent of people who come to us, we start with a financial plan.

We have retired clients living on income streams. I tell people that the more legs a table has, the more secure it is—things like stock dividends, bond interest, social security income, annuities, real estate income. These income streams allow them to maintain their lifestyle, no matter what goes on in the market. We planned it that way. We develop a financial plan and keep it current. I’ve had almost no difficult conversations with clients during this unfortunate time.

The only way what we do doesn’t work is if the entire economy collapses. In the downturn of 2001 to 2003, our portfolios were barely negative until 2002 because they were working how they were supposed to work. But then there was a recession brought on by the market downturn. In 2008 the economy was slowing, the markets off maybe 10 percent, then Lehman Brothers broke.

Ryan: As Chris said, the key here is being prepared in advance with a plan, a reasonable and diversified portfolio and discussions about bad times when they are still good. Now that we are in the middle of an ugly market, we need first to help our clients come out of the downturn. As we work through this and come out the other side, we then need to review the experience for other things they could have done better in terms of emergency preparedness. Have they set up advance lines of credit? Home equity lines? Businesses should be prepared as well with cash and liquidity for emergencies. Many businesses and individuals don’t feel the need for these things, but the current pandemic shines a bright light on the reality of it.

Q. What about business owners? What are you talking about with them?

Ryan: Most of what we hear from business owners is that they are uncertain about what they should do. How long can they keep paying their employees based on their cash and liquid assets? What about SBA loans and the new PPP from the CARES Act? That’s one of the benefits we offer them as HBKS clients. We have depth at HBKS and, specific to the Act, with our partners at HBK CPAs and Consultants, we have individuals who are mastering the new regulations and helping clients understand their options. We’re offering conference calls and webinars with our clients, friends, attorneys with our HBK accounting partners to explain their opportunities and options. Specifically, how will this impact them down the road in terms of sustainability, income, taxes, the whole picture. A financial plan and investment strategy are only good for a business owner if they stay in business, and the CARES Act can greatly impact their viability over the coming days.

Chris: For four decades, we’ve planned for our clients to have short, mid-term and long-term money. Short term they should have six months of cash in reserve—whether that’s a business or an individual. If they have six months, they’re less anxious about this. This will prove a good lesson again: you need at least 25 percent of your year’s expenses in liquid reserves.

A couple of years ago I was talking to a new client who said they didn’t need a line of credit. He didn’t understand that if he got to the point of needing one, he wouldn’t be able to get it. You have to take advantage of the opportunity when you can to ensure you have at least minimally enough to make it through a crisis.

Ryan: It’s important to understand that this downturn is significantly different from 2008. We had a liquidity issue in 2008. There was concern about the availability of money, the whole banking system was stressed. This time, the Fed is ensuring liquidity which allows us to focus on the bigger problems—the virus and reigniting the economy at the end.

Gus: The government and Fed have moved much faster this time around whereas in 2009 it took many months until legislation was enacted. I suppose one can say they learned from their mistakes.

Ryan: We also have had a decade for analysts and economists to develop solutions based on what they learned from 2008. While I don’t think they planned for that research to be made into reality, it has.

Chris: It will be interesting to look back and analyze what we did right and what we did wrong. We’ve analyzed the depression for 100 years.

Q. Have you been getting questions about a post-crisis strategy?

Gus: Our retired clients have enough cash to handle their current cash needs. Typically, we keep about 9-12 months of cash as a buffer for these clients. In general, our clients have long-term time horizons. In many cases, we are in the process of rebalancing clients since this market has naturally caused their portfolios to become more conservative. Thus, we are capturing lower stock valuations as a result.

Ryan: I have had a surprising number of calls from clients asking, effectively, if we should “bet the farm,” maybe even more than people who are terrified and considering pulling out. We have to talk to those aggressive clients off the ledge as well. I think the Fed and federal government learned from their mistakes in 2009. They let banks fail and that caused a disaster. The Fed has moved faster now with “unlimited liquidity” so banks and markets don’t have to worry about “failing”. Further, the Senate passed the stimulus in less than 30 days, which is unimaginable speed, particularly in this divisive political environment. I think, while politically they had to do this, they did learn from their mistakes of not moving fast enough back in 2009.

Gus: The economy will slowly return to a more normal environment. We’re more concerned about our clients’ health and the spread of this invisible enemy. Volatility will most likely remain elevated until we see proof that the virus curve is flattening, an effective treatment is found, and people are permitted to return to work.

The economy will slowly return to a more normal environment. We’re more concerned about our clients’ health and the spread of this invisible enemy. Volatility will most likely remain elevated until we see proof that the virus curve is flattening, an effective treatment is found, and people are permitted to return to work.

I have clients who work in medicine, and I am hearing their stories. They are on the front lines fighting COVID-19. They are our true heroes.

Ryan: I’m not prepared to tell clients to put everything into the market at this point, and likely never would. But if they’re sitting on cash above their reserve requirements, they should be phasing that cash into the market. There’s a tendency to want to hold on to the cash and wait until it’s safer to deploy that excess. That’s usually when it’s too late. I do think we’re going to have a once-in-a-generation buying opportunity before this is done and people should not be hesitant to dollar cost average into it if they have the cash to do so.

Consider the people in this interview – I’ve been here 16 years, Gus merged in an established wealth management practice, and Chris is one of the founders of our wealth management business. We have seen a lot. We have seen a lot of firms and their capabilities, and I can’t imagine a better firm to be with as a client. We can tap into resources around the world as well as all the expertise we have internally. We have knowledge, experience, and unbiased strategies to help folks that have stood the test of time. Most importantly we have relationships with our clients that allow us to dig deeper, understand their situation more clearly, and identify unique solutions for them. With those resources there is so much we can do to help a client. We have the tools to help a client through this, and to the extent to which we can deploy them, this is a massive advantage for our clients.

Chris: I did my first financial plan 40 years ago and I still believe it is the single most important thing for my clients. I had a call from a client who is a doctor the other day whose procedures are being canceled so his income is down. He called just to say that we didn’t need to sell anything because he didn’t need to make money right now. He had emergency funds on hand. That happened because we planned it that way, not by chance. We planned it, worked it, pushed it, looked at it from all directions and kept going back to adjust the plan. I can’t stress enough that people should do financial planning. We have not had difficult conversations with 99 out of 100 clients because of our planning. When it comes to my clients, I’m kind of a coward: I don’t want to be a hero, just put together a strategy and work the heck out of it.

Ryan: Investing without a financial plan is like driving across the country without a map.

The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.

Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.

Insurance products are offered through HBK Sorce Insurance LLC. Investment advisory services are offered through HBK Sorce Advisory LLC, doing business as HBKS Wealth Advisors. NOT FDIC INSURED – NOT BANK GUARANTEED – MAY LOSE VALUE, INCLUDING LOSS OF PRINCIPAL – NOT INSURED BY ANY STATE OR FEDERAL AGENCY

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