Most financial advisors had a long, rough day last Thursday. Their phones rang off the hook with clients calling in a panic, anxious to sell their positions, looking for information, and hoping for reassurance. Of course, that was the day the DOW dropped 1,000 points in less than twenty minutes.
Counter to what you would expect, it was fairly quite around the Net Worth Advisory Group office that afternoon. Why? Each and every one of our clients has a comprehensive financial plan built specifically for their situation. Included in the financial plan is an investment policy statement (IPS), which outlines the client’s investment strategy with an emphasis on the long-term.
In the Net Worth office, financial planners and their clients frequently review their IPS statements to keep the focus on the ultimate goal. Our clients know that if they are to reach their long term financial goals, what happens today is next to irrelevant. What is relevant is that the client’s asset allocation reflects their investment time horizon and risk tolerance. Constantly updating the financial plan ensures this is the case.
The discipline provided by having a financial plan saves our clients a large amount of stress, and prevents them from making decisions that would negatively affect their long-term well-being. Without a financial plan, many investors might panic and rush to sell after the market had declined significantly. This would have caused the investor to miss the 700-point correction immediately following the market pullback.
The focus on the end goal provided by their financial plan enabled our clients to still enjoy their lunch last Thursday. Personally, I didn’t have a single client call anxious to sell their equities and move to cash. If I had my response would have been:
“You are the client, and I will do what you ask. However, think back on all the conversations we’ve had revolving around your financial plan and your long-term investment goals, and how we have been emotionally preparing for these types of market pullbacks. Read through your financial plan and call me back if you still want to sell.”
I’m confident my phone would have been silent for the rest of the day.