Staying the Course


Wealth managers advise sticking to an investment plan in this time of economic upheaval.

Share this article!

Portfolio managers at Ferguson Wellman Capital Management have upped their game when it comes to communicating with clients. In pre-pandemic times, the wealth-management firm would typically send one email a week to clients to update them on investment matters.

From late February to mid-April, advisors sent 26 emails, created three videos and wrote 12 blog posts.

Wealth managers like to say they are in the communications business rather than the investment business. In the roller-coaster ride of bad COVID-19 economic news, communicating to wealthy clients about how their money is being invested has taken on a new level of urgency.

“I don’t think you can underestimate our role in removing emotion from decision-making,” says George Hosfield, chief investment officer at Ferguson Wellman. Early on in the economic crisis, Hosfield created a video for clients in which he explained why he did not think the economic fallout from the pandemic would lead to a Great Depression-style event.

Wealthy clients can be forgiven for panicking. The U.S. unemployment rate is the most stark evidence of the depth of the economic fallout and the reason that comparisons to the Great Depression have emerged.

The number of Americans seeking unemployment benefits has risen since the middle of March to more than 36 million, around a quarter of the workforce.

RELATED STORY: Seeking Peace in a Time of Economic Chaos

The S&P 500 has reacted wildly to the bad economic news, falling precipitously to a four-year low on March 23 before rebounding to pre-crisis levels in May.

The economic turmoil has tested portfolio managers, who have had to make investment decisions during an unprecedented global health crisis that has upended traditional ways of doing business.

Zoom meetings, video presentations, blogs — portfolio managers have tried out every digital means available to tell a story of the need to stay calm and not panic-sell assets.

“It can do permanent damage to your portfolio to sell at these prices,” says Hosfield of the stock price declines seen in March. The investment manager is upbeat about an economic recovery, claiming the comparisons of today’s economy to the Great Depression are overblown.

“There are huge unknowns with the clinical aspect of this. But this will not be a depression where there is a failure of financial institutions and banks,” says Hosfield. “The capital markets have functioned well. The central bank has done whatever it takes.”

Staying invested is key to investment decisions at financial services firm D.A. Davidson. “We think people have to stick to a plan,” says Michael Purpura, president of wealth management. The biggest concern for Purpura was becoming isolated from clients and not being able to have in-person meetings, the hallmark of client communication in the wealth-management business.

“We had to pivot to video-conferencing. That has been a significant change,” says Purpura. The transition has gone smoothly, he says, since many older clients are already versed in communicating with their grandchildren over digital platforms such as FaceTime.

A side effect of the pandemic is that clients are more “reflective” and are thinking more about estate planning, says Purpura. Reegan Rae, managing director of wealth management at Arnerich Massena, is also seeing this trend. “For clients who haven’t had conversations about getting their affairs in order, having a pandemic where mortality is involved is a catalyst.”

Rae also cautions against selling assets while the markets are down. “We believe in staying invested,” she says, adding it is a good time to buy certain asset classes such as small-cap stocks.

How the pandemic shifts the behavior of consumers is one aspect of the economic crisis that Rae is wary about. Consumer spending accounts for 70% of GDP. The U.S. consumer-confidence index, a measure of optimism on the state of the economy that consumers express through spending and savings, plunged in April. “Will we see another iteration of a Depression-era generation that paid with cash, only bought what it needed, that was more conservative?” wonders Rae.

RELATED STORY: The Financial Advisor Time Bomb

At Ferguson Wellman, portfolio managers continue to reach out to clients to reassure them that their portfolio of investments are stress tested to withstand economic fallout. Hosfield remarks how discussions with clients are much different from the last recession of 2008-2009.

“The conversation is not like in 2008, when they asked why we didn’t see the problem with banks,” he says, referring to the failure of large banks such as Lehman Brothers, which led to a global contraction in credit. “They are asking more, “How are you?’”