Spectrem report highlights need for active approach by financial advisors. A stunning 81% of affluent investors polled by Spectrem Group in January 2008 said they'd never experienced a significant financial setback. In view of the fact that the S&P 500 lost 45% of its value in 2000-2002, this "bulletproof" mindset against a backdrop of recent market deterioration poses significant challenges to financial advisors.

Since January, the S&P 500 has given up about 36% of its value. Much of this loss -- spurred by failures and enforced mergers of large financial-service companies -- has kicked in over the last six weeks as politicians, bureaucrats and central-bank functionaries the world over scramble to contain the damage. And with U.S. real-estate values still near historic highs, another big shoe may be about to drop.

To some extent recent events seem to have snapped many affluent investors out of their early-year torpor. In response to a new Spectrem survey statement "News about Merrill Lynch, Lehman Brothers and AIG will influence my investment plans over the next six months," 54% of respondents said they agreed. The rest disagreed (29%), didn't have an opinion (15%) or didn't know what to say (2%).

All eyes on

The point is, a whole lot of clients are now looking to their advisors -- the primary source of investment information to 38% of Spectrem's affluent universe -- for reassurance and, fairly often, to reset their portfolios to suit rapidly declining tolerances for risk. And a complacent minority would seem in need of help from their advisors to understand that investment markets have become rather more challenging in recent months.

In its Manage Your Client Relationships Through the Financial Crisis report advises financial advisors to pull out the stops and communicate, often; at least weekly. Particularly, advisors should say why they're recommending portfolio changes or not, as the case may be.

Among Spectrem's other recommendations to advisors on ways to help clients cope with market uncertainty are:

Recognize the concern the financial crisis has on the individual investor and directly address the client's concerns with clients -- with more emphasis on life issues like retirement and kids' education than matters merely of portfolio performance. Understand that deteriorating confidence in corporate America generally and in financial institutions in particular calls for reassuring clients about the essential soundness of the U.S. business model.  Understand and be able to explain the credit crunch and its impact on investors and the financial-service industry. Respond to clients promptly -- and understand that "promptly" means within a few hours. (Spectrem research finds that "Returns my phone calls promptly" narrowly edges out "Provides good return on investments" as a primary driver of client loyalty to a financial advisor.) Recognize that, in addition to the financial crisis, other impending maters will have an impact on the investing behavior of the affluent. Chief among them is the U.S. presidential election and possible changes in tax structures that result from it.

Chicago-based Spectrem, a business consultancy that specializes in the affluent and retirement markets, conducts 250, 10-minute telephone interviews with financial decision-makers in households with at least $500,000 in investable assets each month.

Manage Your Client Relationships Through the Financial Crisis is available at SpectremAdvisor.com, a new Spectrem website for RIAs. -FWR

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