War or no war, investment message must remain consistent, advisors say

(March 20, 2003) As the U.S.-led attack on Iraq kicks into high gear, advisors are faced with nervous clients who are worried about any possible impact on their investments. Stick to the plan and look to history is the main message from several advisors contacted by Advisor.ca and Advisor’s Edge magazine.

“I am talking to my clients about the same old thing: diversification and asset allocation,” says Sucheta Rajagopal of Hampton Securities in Toronto.

“I tend to confirm more strongly than ever the need for focusing on their financial plan and the longer term,” adds Kerin Lloyd of Assante in Whitby, Ontario. Lloyd says although the Iraq conflict will cause investor anxiety as markets fluctuate, those things become “almost irrelevant” if you take the long view.

“The main short-term concern should be the North American economy, which will have more implications for investors in the next year or so than the fate of Saddam or his people,” he adds.

Fred Smith of Raymond James in Saskatoon says the Iraq crisis is no different than any other external issue for clients concerned about their investments. “I compare things to the Gulf War in 1991,” he says. “In that situation, as soon as an Allied victory became clear, the markets rebounded. I say this will likely be the same.”

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But not everyone is convinced the end of the war will mean an immediate return to market prosperity. There’s a long list of reasons why the bear market has lasted three years, notes Stephen Dunn of Investors Group in Sault Ste. Marie, Ontario, including fallout from the September 11 attacks, corporate corruption and a general lack of investor confidence. “The markets will sooner or later prevail but it may take several years to come out of this,” he says.

Smith says he’s willing to be frank with clients and discuss a worst-case war scenario. “I make it clear that if the war doesn’t go well, then the situation gets ugly. Their equity investments will be hit hard in this event.”

Lloyd says he likes to use historical data, such as a graph showing the performance of the S&P 500 index between 1988 and 1998. “This shows clearly how the market fell when Saddam invaded Kuwait, bottomed out when [U.S. General] Schwarzkopf presented his war plan and, following the successful completion of the ground war, commenced the bull market of the 1990s.”

Figures showing market declines and rebounds after other major world crises can also help clients understand the importance of long-term planning, adds John Burns of Edward Jones in Toronto. “The present and the future will continue to amaze and distress us,” he says. “What we need to do is stick to a proven plan of proper diversification among all asset classes.”

Rajagopal says times like this help underline the importance of her specialization: socially responsible investing. “Because weapons manufacturers have been screened out of my clients’ portfolios, they are able to protest the war with a clear conscience,” she says. “Sometimes SRI seems a bit idealistic, but with the imminence of war, there is a clear, practical reason to align your portfolio with your views.”

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Need help trying to allay your clients’ fears in these uncertain times? Check out Advisor.ca’s special package entitled “Combatting uncertainty: Five essential tools to ease client anxiety now” in the Practice Zone or click here.

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How are you dealing with clients who express concerns about Iraq? Join in the conversation that’s already started on the Iraqi crisis in the “Free for All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

(03/20/03)