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Thursday, Mar 28, 2024

In Down Market, Financial Advisors’ Worth Is Up

In Down Market, Financial Advisors’ Worth Is Up By SHELLY GARCIA Senior Reporter A few years ago, some of Stanley R. Cohen’s clients complained they were getting returns of only 30 percent when their friends were doubling their money in the stock market. Today, those clients are sending along their thanks not to mention some of the very friends they once envied to the Woodland Hills-based financial advisor. With the nosedive of the Nasdaq and blue chips like Enron crumbling, a number of folks are forsaking their stockbrokers in favor of financial advisors and planners like Cohen, professionals they never considered using when the market was firing on all cylinders. “It helped my business,” said Cohen, a certified financial planner who owns an American Express Financial Advisors Inc. franchise, of the market’s down trend. “I’m getting calls from people (who were investing) at Merrill Lynch and Schwab and they’re saying, ‘I was referred by so-and-so, and their accounts haven’t gone down like mine have.” Unlike stockbrokers who mainly sell securities, advisors and planners lay out broad-based, customized financial strategies. Though they may also sell stocks and other instruments, their main focus is to help clients achieve financial goals, saving for a home, the kids’ education or retirement or minimizing taxes, for example. Because of their orientation to long-term strategies, many of these advisors argued against an over-emphasis on technology and other high risk investments, even as those investments were yielding record returns. But in the flush of the bull market their advice often went unheeded, as did their services. More than a few high-flying investors figured they already had all the plan they needed: get rich on tech stocks and retire at 50. But the dot-com meltdown, followed by the erosion in the value of blue chips, the events of Sept. 11 and, more recently, startling disclosures at once high-and-mighty Enron and Global Crossing, dashed many of those early retirement plans, and even the most aggressive investors have tempered their appetite for risk. “It’s just made a lot of people think,” said Herb Perone, a spokesman for the trade group, American Council of Life Insurers, referring to the terrorist attacks of Sept. 11. “That and the stock market decline working together really drove the point home that you have to protect your assets as well as accumulate them, and you have to keep your financial protection current, whether it’s life insurance or an annuity or a 401(k).” Although there is no hard data available yet, life insurance companies reported a huge spike in calls after Sept. 11, Perone said. And other investment data points to a growing conservatism among investors. New cash flow into stock mutual funds plummeted 90 percent in 2001 to $32.3 billion, according to just released figures from the Investment Company Institute, an industry trade group. At the same time, investors pumped a record $375 billion into money market funds in 2001, the ICI data revealed, reflecting the rush to safe, albeit low-yielding investments. “I think our customers now are more receptive to a well-thought out plan,” said Lotay Yang, vice president and branch manager for Fidelity Investments in Woodland Hills. “In the past we had the big momentum up, and a lot of customers would come in with a check in their hand and want to invest in dot-com. With the recent fall in the market, they want to hear about asset allocation. They want to hear how bonds work. They want to learn more about the market.” While financial advisors and planners say that most of their clients are sticking with their basic strategies, there have been some noticeable changes. They are fielding calls from those who didn’t pay much attention to how they were invested before and now want to know what’s in their portfolios. They are getting questions about life insurance, and they are hearing clients redefine their notions of risk tolerance. “There was a whole generation of investors who did not understand what risk was,” said Mitchell Freedman, the president of MFAC Financial Advisors, Inc., a fee-only service in Sherman Oaks. “They thought they did, meaning if you invest in risky things over the long term you’re going to get superior results.” Some investors, particularly younger ones, who relied on high-risk investments for income, have come knocking on planners’ doors out of necessity. They may have hoped to use their investments for their kids’ education or other upcoming needs and are now searching for new strategies to bolster their cash position. “A lot of them have been stretched,” said Richard DeFronzo, director of tax for Miller, Kaplan, Arase & Co. LLP, a North Hollywood accounting firm that provides financial, estate and other types of planning services. “They spent their paper profits before they got them. The calls I got before were, I did this and it turned out great, whereas now the calls are, do you have any ideas? Any direction?” The horror stories about retirees left destitute in the wake of the collapse of Enron have even sent conservative clients calling planners to rethink 401(k) plans and stock option strategies. “I have a client who works for a biotech company, and she has non-qualifying stock options, incentive stock options, a stock purchase plan,” said Freedman. “She has her company stock in her stock purchase plan. Her stock options are in her company stock and when she exercises her options she tends to retain those shares. And her livelihood is dependent on her employer as well.” Although Freedman had been advising his client for some time to diversify her portfolio, she did not take the advice to heart, until now. “She did call to talk about diversification,” Freedman said. “There’s a particular scenario where somebody woke up to the risks of concentrating your portfolio in one or a few securities that can come back and burn you.” Other planners report that clients have become far more receptive to selling company stock bought through stock options. “That was definitely a more difficult sell a few years ago,” said Cohen. “People said, ‘If I do a good job at the company, I have a say in how the company does.'” Fidelity’s Yang said he remembers reading a book that claimed people spend more time shopping for furniture than they do on their investments, but that may be changing for all types of investors as a result of recent events. “I definitely think people now are more deliberate,” Yang said. “They’re really thinking things through as opposed to saying, ‘My buddy down the street said buy XYZ.’ They’re taking the time to look under the hood to see what’s going on before they jump in.”

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