product spotlight
| By Maggie Leyes
MUTUAL FUNDS
Getting Back on Track
Help your clients understand that mutual funds will follow their mandates,
and that the market is cyclical.
This August, Advisor Today spoke with Wayne Badorf, CFP, about he state of the mutual fund
industry. This former financial advisor,
who is currently Wells Fargo Advantage
Funds’ national sales manager, trains
other advisors on both the asset and prac-tice-management sides of their business.
We asked Badorf what advisors should
know and what they should be doing in
the current market environment.
Advisor Today: What are advisors grap-
pling with when it comes to mutual
funds, the market and their clients?
Wayne Badorf: The advisors we’re talking
to are having conversations with their
clients about fear. When I recently
asked several what they were hearing,
they said that from last September
through February of this year, there
was fear in the markets. Then from
February to now, there was a fear of
the markets. Clients who got out of
the market and are now seeing the
market run-up are afraid of getting
back, in case the market declines.
AT: So how should advisors respond to
that fear?
Badorf: Fear grips people if they don’t
understand how it can impact their
long-term goals—if they’ve been taking a
short-term view of long-term investments.
Advisors have to make sure that their
clients haven’t lost sight of the big picture.
Clients don’t know why they’re afraid;
they just know that they are afraid.
Advisors need to put that emotion into
the proper context. They need to talk to
their clients about the value of diversification—of having multiple investments
that complement each other. Even if one
investment is in trouble, the others can
Asset allocation helps
manage risk, not avoid it.
perform for them and they can still reach
their financial goals.
They also need to help their clients
better understand asset allocation. It helps
manage risk, not avoid it. I’ve seen a lot
written about asset allocation being dead.
It isn’t. It’s just that the wrong emphasis
has been put on it. Advisors need to help
their clients understand the idea that risk
won’t go away. They can’t avoid it, but it
can be managed.
AT: What about “buy and hold”? Is
that approach to investing dead?
Badorf: For many, the philosophy of buy
and hold has been “buy and forget,” or
“set it and forget it.” But it’s important to
reallocate balances according to asset-allocation goals, based on clients’ risk
tolerance and time horizon. It’s important
to review and diversify.
AT: What do you think advisors fail to
understand about mutual funds?
Badorf: I think that most of them understand them well, but some don’t recognize that mutual funds are going to follow
their investment mandates, regardless
of the markets. And they aren’t going to
change—large-cap growth funds are going to stay large-cap growth funds. So it’s
up to the advisor to manage the allocation
to those funds.
AT: What should advisors be telling
their clients now?
Badorf: They should be talking about
the cyclical nature of markets. Many
investors—and advisors for that matter—thought the markets were going
into a downward spiral forever. Now that
it’s turned to the upside, we also have to
understand that this won’t last forever,
either. Advisors need to manage their
clients’ expectations about how they can
build back what they have, and make sure
that the appropriate controls are in place.
AT: What are the dos in this current
environment?
Badorf: Contact clients more frequently than ever. Just because the
market has turned around doesn’t
mean your clients are comfortable.
Don’t assume everything is OK if you
don’t hear from them. If you’re not
proactively reaching out and offering
to sit down with them to reevaluate
their funds, you’ll lose them.
Continue to promote the rationale
for what you recommended, for what
you did and why you believe in it.
Clients are looking for that leadership—that strength and fortitude.
Help them obtain the information
they need to take a rational approach
to decision-making. Help your clients
stay rational in an irrational time.
Maggie Leyes is a freelance writer and a
frequent contributor to Advisor Today.
18 ADVISOR TODAY | November 2009
