Lessons Learned from the Financial Crisis: Personal Financial Planning Specialists Discuss the Altered Investment Landscape
[ILLUSTRATION OMITTED] Since the onset of the economic crisis last fall, many CPAs who are personal financial planning specialists have been working overtime to reassure clients overwhelmed with fear about the future and safety of their investments and to reassess and reorient investment portfolios when necessary. Members of the AICPA's Personal Financial Planning (PFP) Section recently reflected on their experiences from the past year and their outlook for the future. Lyle Benson, a member of the AICPA's PFP Section for 20 years, moderated the discussion on behalf of the JofA. Here are some excerpts: COMMUNICATE WITH CLIENTS JofA: When the economy took a downturn, what was the reaction of your clients? What steps did you take to work with them through the turbulent market? Jerry Love: I strongly emphasized the overstatement of the state of the economy by the mainstream news media and my firm belief in the existence of underlying economic principles that would prevent the country from going into another Great Depression. When I reminded my clients in West Texas of what we experienced during the late '80s--an oil and gas industry crash, along with a major collapse of commercial real estate and the almost complete disappearance of the savings and loan industry causing many community banks to fail and resulting in double-digit unemployment and a major contraction of the available lending options, most would say, "You're right. It can be very bad and still recover." Michael Goodman: We spent a lot of time reaching out to clients during this period, taking the focus off what was happening "today" in their portfolios and putting it back on their original goals and the time frame for when they actually need money and where the markets will be when they likely need their funds, whether it's seven, 10, 20 or 30 years out. Beth Gamel: People were really worried that they were going to run out of money and not have enough to provide for themselves. Because people were so agitated, it was important to have more frequent meetings, phone calls, and e-mail exchanges with clients because they needed a lot of handholding and to know that you were available to them and that you were listening. Scott Sprinkle: We wanted to reach out to our clients in as many ways as possible to make sure they understood their investment policy statement and overall investment plan. While the market pullback was severe and the degree of the pullback unexpected, the risk had been planned for in advance. We "stress tested" the client's portfolio, looked at asset allocations, and made sure that clients understood the construction of their portfolio. Specifically, for retired individuals, our plans recommend three to five years of living expenses allocated between cash, short-term bonds and other high-quality, low-risk assets. We reminded clients of the amount of work completed to establish their investment plan and that the plan accounted for market volatility This provided some comfort and allowed clients to stay prudently allocated until the market rebounded. The last thing we wanted any client to do was panic and sell out at the bottom. That's where CPAs in general do a better job than most advisers: focusing on the front end and the development of a comprehensive plan versus just buying assets. This allows clients to focus on what is important in tough times and allows them to stay disciplined in their investment approach. RE-EDUCATE, REASSESS AND REVISE WHEN NECESSARY JofA: Did anyone else follow this approach of stepping back and re-educating clients on their portfolios in light of market changes or in terms of their overall goals and planning? What did you do to help reorient investment portfolios in light of these times? Gamel: In my practice, I only do financial planning and investment advisory work. In order for a client to become an investment advisory client, we have to go through an initial financial plan, which involves retirement projections and asset allocation development. …