Financial Advisers, Losing Clients, Revamp Strategies

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Rachel Frank / Corbis

A couple meet with their financial planner

The stock-market crash of 2008 — along with the crippling recession, high-profile convictions of rogue financiers like Bernie Madoff, puny bond yields and oodles of volatility — has led many investors to question the need for pricey financial help.

"We've seen about a third of the [adviser] industry fall off in the last two years," says Jason Vanclef, president and chief executive of Vanclef Financial Group and author of The Wealth Code: How the Rich Stay Rich in Good Times and Bad.

Fee-based advisers, who typically provide services in exchange for an annual 1%-to-2% cut of the client's portfolio of assets, saw their income drop about 40% in 2009, according to John Harrison, a CFP and founder of Aspire Financial Advisors. "Their income stream declined, but their expenses didn't," he says, noting that many advisers are facing financial hardship.

Commission-based advisers, who receive fees for each product they sell to an investor, were also hit, as jittery investors stopped trading and even pulled cash out of the markets. "In times like that, people kind of freeze — they become like a deer in the headlights," says Marty Kurtz, president-elect of the Financial Planning Association, who has noticed a 15% decline in his association's membership since 2007.

Advisers who have survived — even prospered — have typically spent lots of time hand-holding their clients through the worst months of the crisis. Says Vanclef: "Most of the advisers who got out of the business were the ones who didn't know how to communicate." Vanclef had no such problem; he hosted a big party with a Frank Sinatra–type crooner for 300 of his largest clients at the nadir of the Wall Street meltdown in November 2008. "Right in the middle of the chaos, I got up there and asked, 'Do you think Goldman Sachs is holding a big party for their clients today?' and everybody laughed." In the long run, he says, "we've all gotten closer."

Many advisers are also now revamping their investment strategies based on the tough lessons they learned over the past two years, with many adding nontraditional investments to their clients' portfolios.

"The only people who really didn't get clobbered in this most recent set of market meltdowns were those who were diversified across six and seven completely different kinds of asset classes, to include things like real estate, precious metals, equipment leasing and other things," says Harrison. "In the past, [people] thought that if they had stocks, bonds and cash, they were diversified, but now they're realizing that's not true." Harrison is now recommending clients put as much as 25% of their portfolio into nontraditional investments.

In an April survey conducted by Harris Interactive for the Principal Financial Group, 62% of advisers said they're now recommending more financial-protection products, such as life insurance, annuities and disability insurance. "Clients are a little bit more receptive to planning for the risk side rather than just the accumulation side," says Luke Vandermillen, vice president of retirement and investor services at the Principal Financial Group.

Jacob Gold, a CFP and president of Jacob Gold & Associates, says it's critical that advisers get in touch with the new sensibilities. "A lot of advisers across the board have had to re-examine the way they do business — or if they should be in the business altogether," he says. "Those true buy-and-hold advisers, who say, 'Put the money in and then forget about it' ... are being forced out because their clientele is leaving in droves."