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The True Test

For an advisor, this is the ability to help clients focus on long-term investing.

By Allyson Lewis, CFP

The true test of every advisor is the ability to help his clients focus on the outcome of investing in prudent, long-term investment strategies during these turbulent times. With the increased stock market volatility and the constant legal and regulatory changes in our industry, one of your keys to success as an advisor is your ability to persevere through the constant noise of today's environment.

Two books have greatly helped me understand this concept of perseverance: Endurance by Alfred Lansing (see box), and Asset Allocation: Balancing Financial Risk (third edition) by Roger C. Gibson.

In his book Endurance, Alfred Lansing tells the story of Sir Ernest Shackleton, an explorer who wanted to be the first man to walk across the Antarctic on foot. In 1914, he commissioned a ship called Endurance, because his family's motto was "By endurance we conquer." One day's sail from the Antarctic, their ship became trapped in pack ice; they stayed stuck 10 months, until the ice slowly crushed their ship and it sank to the bottom of the ocean. Shackleton and his crew were left stranded on an ice floe.

You will be swept away by this story of Shackleton's leadership and courage as you read the first-hand accounts of how they endured punishing circumstances and beyond all reason made it back to their beloved England. This book will make your heart pound and your palms sweat. You'll realize that all jobs and all lives have difficult circumstances, and it is in the act of enduring that people recognize their deepest fulfillment.

Gibson's book gives a superbly detailed explanation of the price investors pay for risk, and the rewards they receive if they are willing to stay the course through the up and downs of the market cycle. When so many others are pushed out of the markets by fear, a rare few take advantage of these opportunities to increase their holdings.

Approximately one in every four years produces a bear market; yet somehow our clients are psychologically unprepared for these downturns--they seem surprised by them and they are willing to blame you, the advisor, for the market decline. It is far better for advisors to set client expectations on the front end of the investment process by having straightforward conversations with them.

Here is some fuel for thought on enduring through the highs and lows of the market. Fill in the following blanks:

  • Since World War II, there have been ____ bear markets
  • The average decline has been ____% and lasted ____ months
  • The average bull market has been ____% and lasted ____ months
  • Including these ____ bear markets, the average return for the S&P 500 has been ____%
  • Your client's $1,000 would have grown to $____
  • Over that same period, a risk-averse investor who chose to place his money in T-bills would have grown his $1,000 to ____, a ____% return. Safety has its price.

Approximately one in every four years produces a bear market; yet somehow our clients are psychologically unprepared for these downturns.

Where do we go from here?
And while it is helpful and very interesting to look at what has happened to prudent investors over the last 60 years, your clients will be looking to you for advice regarding what is going to happen over the next 90 days, when their quarterly performance report hits their desk. So, here are some steps you can take with your clients to help them endure:

  1. Reestablish your clients' risk tolerance level. Help them understand in concrete terms that approximately one of every four years brings a significant market decline. Put this into a quantifiable dollar format.

  2. Rediscover the power of dollar-cost averaging. Put the next bear market to work for your clients.

  3. Review clients' current asset allocation and make sure they have enough exposure to fixed-income securities and other asset classes that are not tied to broad declines in the economy.

  4. Rebalance your clients' portfolios on a regularly scheduled basis. This will force you to reduce exposure to stocks at the peak of the bull markets and help you add equities during the difficult times.

  5. Work diligently to stay in touch with, and to educate your clients--regular communication will solidify your relationships, and education will raise their confidence level.
Allyson Lewis, CFP, is a motivational speaker, strategic business consultant and author of The Seven Minute Difference: Small Steps to Big Changes. For her free report, "10 Tips for Remarkable Advisors," visit or call 870-897-0845.


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