Many financial advisers are suffering a crisis of confidence that is hurting their relationships with existing clients and hampering their abilities to recruit new clients.
These days, Kenneth Gutwillig talks more like Oprah or Dr. Phil than a financial adviser.
Recognizing that many of his colleagues are feeling overwhelmed by fear, stress and anxiety as they struggle to steer their clients, as well as their own practices, through the financial crisis, the New York adviser last month formed a support group of sorts for financial advisers.
The group, the Investment Managers and Advisors Alliance of New York, is intended in part to give advisers a forum in which to discuss their feelings openly with others in the field.
“They feel like they are drifting,” Mr. Gutwillig, a partner at Financial Decisions Inc., said in describing the mood among the advisers he has spoken to recently. “Some doubt every [investment] precept they've relied on.”
Mr. Gutwillig is not alone in noticing the fragile emotional state that many advisers are in these days.
Last fall, amid the market's precipitous decline, both the Denver-based Financial Planning Association and the National Association of Personal Financial Advisors in Arlington Heights, Ill., sprang into action by hosting a series of conference calls aimed at helping advisers, their staff and their clients through the emotional upheaval caused by the crisis.
In addition, the FPA even set up a “financial crisis resource center” that acts as a clearinghouse for advisers trying to make their way through the downturn.
Without a doubt, financial advisers are in need of help. Many are suffering a crisis of confidence that is hurting their relationships with existing clients and hampering their abilities to recruit new clients.
The crisis of confidence has spilled over to every corner of the financial advice business — from top decision makers to lower-level advisers and support staff, experts said.
“We spend a lot of time talking about how [our staff] people are dealing with the crisis,” said Richard Salmen, a senior vice president with GTrust Financial Partners in Topeka, Kan., which oversees about $450 million in assets. “We're upfront where our firm's finances are at” so employees know that layoffs are not imminent. “Transparency really resonates.”
Mr. Salmen is also the president of the FPA.
SENSE OF GUILT
While advisers are not responsible for the so-called Great Recession, many are saddled with a soul-searing sense of guilt for putting their clients in investment portfolios that were decimated by Wall Street's historic decline over the past 18 months.
Others are frozen into inaction by fear of a misstep or because they are overwhelmed by events beyond their control.
It's called “compassion fatigue.”
The term was coined in the 1990s to describe a syndrome experienced by doctors, nurses and other caregivers overseeing individuals facing a terminal illness.
Instead of empathizing or “feeling bad” for someone, the caregiver essentially tunes out the patient in an effort to prevent himself or herself from being drawn into a pit of despair.
In the wake of the financial crisis, however, many advisers are also exhibiting signs of compassion fatigue as they face clients who are devastated by the loss of their retirement savings, their homes or their confidence in the economy.
“I can see why advisers are feeling horrendous,” said Patricia Smith, founder of the Compassion Fatigue Awareness Project in Mountain View, Calif. “Money affects peoples' lives profoundly.”
Ms. Smith, who works with emergency responders, health care professionals and social workers, was “shocked” when she got her first-ever call from a financial adviser in January.
Signs of compassion fatigue include sadness, rage, irritability and pervasive hopelessness. Other signs include a decrease in job performance and even irrational decision-making.
Not surprisingly, those most at risk of compassion fatigue are advisers who take a more holistic approach to their clients' finances.
“Customer-oriented financial advisers are those most vulnerable to compassion fatigue because they get to know their customers personally,” said Charles Figley, a professor in the School of Social Work at Tulane University in New Orleans and an expert on disaster-related mental health. “If [advisers] were not customer-centered, they wouldn't have this problem.”
If that isn't bad enough, many advisers are experiencing a phenomenon known as “shared trauma,” which develops when an adviser has been as victimized by the financial crisis as much as his or her clients.
“It's often challenging to separate the sadness and distress they feel for their clients from the sadness and distress they feel for themselves,” Mr. Figley said.
The mental funk is causing many advisers to avoid client contact, which is a big mistake.
Investors are looking for guidance, said consultant Matt Oechsli, president of the Oechsli Institute Inc. in Greensboro, N.C.
About 80% of affluent investors — that is, those with more than $500,000 in investible assets — are “disgusted with their adviser because their adviser is spooked,” he said.
Mr. Oechsli's firm this year surveyed 733 advisers, and late last year surveyed 750 affluent investors as the market was falling.
Even so, only about 20% of advisers have increased their face time with clients this year, he said.
Lost confidence is also behind a virtual halt in marketing activity by advisers.
In the current environment, only 3.2% of advisers brought in 10 or more accounts worth between $250,000 and $500,000 over the previous 12 months, according to data from the Oechsli Institute. That's down from 7.7% in October and 26% in the first quarter of 2007, respectively.
“Advisers are paralyzed,” Mr. Oechsli said.
Just 1.3% of advisers brought in 10 or more $1-million-plus accounts over the past year, he said. That compares with 7% during the boom year of 2007.
The numbers are striking because “everybody agrees that now is the best time” to add clients, he said. “Those who are bringing in business are bringing it in faster than ever before.”
EMOTIONAL OBSTACLES
So how do advisers overcome the emotional obstacles before them?
For starters, they “need to start with the fact that [the bear market] isn't their fault,” Ms. Smith said.
While investors generally do not blame advisers for market losses, they do hold them accountable for not communicating with them enough, Mr. Oechsli said.
“Tell them you're sorry, [that losses have] happened to everyone across the board, and you want to help [them] going forward,” said Alden Cass, psychologist and founder of Competitive Streak Consulting Inc. in New York.
He is also author of “The Bullish Thinking Guide for Managers” (John Wiley & Sons Inc., 2008), which espouses disciplined thinking in stressful times.
Meanwhile, Mr. Gutwillig and his partners have averaged “one client touch per month,” he said. “We make sure we're always doing that. And [we] don't let people skip quarterly meetings if they're depressed.”
REACHING OUT
There's also a lot to be said for reaching out to other advisers in times like these.
“It's a good time to be talking to each other,” said Ron Pearson, founder of Beach Financial Advisory Service in Virginia Beach, Va., which manages about $35 million.
Mr. Pearson is part of a long-standing adviser peer group that lately has been spending about half its time discussing emotional issues, he said.
Meeting with peers is valuable “when you just need to talk to someone to remind you what you know is true — that people pay you to keep them from doing anything crazy,” Mr. Gutwillig said.
Advisers may need that kind of help for some time to come.
“There's a strong tendency to assume the recent past is predictive of the near future,” said Terrance Odean, professor of banking and finance at the Haas School of Business at the University of California, Berkeley.
“It [will] not get easier [for advisers] until the day when each client gets back to their high-water mark,” Mr. Gutwillig said.
E-mail Dan Jamieson at djamieson@investmentnews.com.
