When their phones rang this week, many financial advisors likely grimaced.
They expected panicked clients on the line, calling about the worldwide markets’ dramatic downturn on news of the coronavirus’ rapid spread.
At Santa Monica, Calif.-based Gerber Kawasaki Wealth & Investment Management, the phone was ringing off the hook by late Wednesday, says Ross Gerber.
And about 25% of the clients calling wanted to pull their money out of the markets.
But the RIA, whose 10-year old shop has 3,000 clients and about $1 billion under management, was ready with answers.
Sheryl Rowling of San Diego’s Rowling & Associates had only heard from a handful of her 250 clients by late mid-week.
The founder of the $340 million RIA attributes the relative calm to having encouraged clients to focus on the long term, even amid the type of volatility that unfolded in the markets this week.
“We have trained them over and over again about staying the course and the market is going to have ups and downs. And when there’s something that happens in the economy, we will send out an email that says, ‘Okay, this is happening,’” she said.
“We had two clients ask about the impact on their portfolios. And that’s it,” Rowling says.
Her tactics highlight what FAs might try during this downturn to quell clients’ fears in such environments.
This week, the Dow Jones Industrial Average had plunged more than 3,200 points as of market close Thursday. The S&P’s six-day slide represented a 10% drop, according to the Wall Street Journal. Such metrics put markets in correction territory.
And Rowling and Gerber say now is when some of the work crucial to advisors’ most important job — reminding clients to stay the course and recognize no one can time the markets perfectly — kicks in.
(Story continues below following slide show.)
Coronavirus in Context
Broker-dealers and banks' market spin on pandemic
Sebastian Raedler, head of European equity strategy at Bank of America Merrill Lynch “We have cut our 2020 global growth forecast to 2.8%. This would be the lowest reading since 2009. Growth momentum was soft even before the Coronavirus shock…We expect lagged spillover effects due to supply-chain and tourism disruptions, and the spread of the virus outside China.” —February 27, 2020
Mike Wilson, chief investment officer, Morgan Stanley “[O]ften times overbought equity markets are looking for a reason to correct and coronavirus has presented a pretty good one. …Our advice is sticking to larger-cap quality stocks and maintaining a balanced portfolio of stocks and bonds should continue to weather storms like we are experiencing now.” —February 27, 2020
Mark Haefele, Global Chief Investment Officer, UBS Global Wealth Management “Given the incubation period of the virus, the next two weeks will be critical in determining the extent of the global outbreak, the steps international authorities are willing and able to take to contain it, and the economic effect of those measures.” —February 26, 2020
Jay Bryson—Acting Chief Economist, Wells Fargo Securities Economics Group "[W]e believe that potential supply chain disruptions could have more of a depressing effect on the U.S. economy than the demand-side effect of weaker export growth. And observers are correct to question how effective Fed rate cuts would be in combatting supply chain disruptions. Yet easing by the Fed would not be completely ineffective." —February 26, 2020
Bruce Kasman, Chief Economist, J.P. Morgan “We have slashed our global GDP growth projection for 1Q20 in half to a 1.3% annualized rate, which is the weakest outcome since the global financial crisis, but the trajectory regionally and globally still indicates nearly all the hit being recaptured by 3Q20. ” —February 20, 2020
For Rowling, telling the story started early.
On Feb. 20, prior to the downturn, Rowling dispatched an email to all her clients. “As I write this, the market is at an all-time high. Although this is good news, it always prompts the question: When will everything drop?” she wrote. “For anyone who has any history with me, you all know that my answer is always ‘Nobody knows. Stay the course.’”
She also empathized with client fears. “[E]ven I have doubts once in a while and will sometimes ask the same questions as you! For example, I see the effect of the coronavirus and wonder when the market will reflect the economic impact of this potential pandemic. So, I did some digging,” she told them.
Rowling then noted statistics that showed new cases of the coronavirus had decelerated in China. She cited China’s policy of injecting liquidity into its markets to restore investor confidence, and noted that in prior pandemics equity markets averaged an 8.5% return over six months.
“So, why did I write this email?” Rowling asked. “I guess it was to show you that we ask the same questions as you — and we always research to make sure we are steering you in the right direction.”
She reminds readers that when markets drop, her team rebalances their portfolios, buys bargains and does tax loss harvesting.
“We keep three to six months of cash flow liquid, so we’re never forced to sell,’” Rowling says. “And then we’re fully invested when the market comes back.”
Prior to the downturn, Gerber warned of the potential for the coronavirus to have market consequences on the firm’s YouTube channel. The video appears on his firm’s client app as well. “I was like, you know, it [the market] just doesn’t go up every day, so a 10% correction, virus or not, is totally normal,” he says.
Gerber has halted the fears of many clients seeking to dump their holdings.
But some he couldn’t stop. Those clients’ breakneck u-turns from bullish to bearish surprised him. “It’s amazing,” he says. “Literally like a week ago, the greed level was like off the charts, you know, ‘Can I buy more Tesla?’” At that point, he told them he preferred to keep a conservative position and warned them about the virus’ potential.
When those same clients called back, Gerber pointed to the fact that his firm’s portfolios were still outperforming the market indexes.
That reasoning failed with some. “It’s just mind-blowing to me how bullish everybody was two weeks ago, and now everybody’s insisting that the world is coming to an end,” Gerber says.
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