AdvisorHub (October 20, 2022) – Many clients are showing patience, and the onslaught of lawsuits or complaints that often crop up in the aftermath of severe market shocks has not set in despite recent volatility in the markets.

Brokers, wealth management executives, and plaintiff lawyers all agree that the customer on average appears more patient this time around. That’s despite the S&P 500 Index dipping in late September to its lowest level since the early days of the pandemic in March 2020.

“While some people have come forward, a lot of people are still listening to their financial advisors who are saying, ‘It’s a temporary dip, and just simply remain patient,’” said Andrew Stoltmann, a high-profile plaintiff lawyer in Chicago, whose practice focuses on suing brokers for investors.

Since the beginning of the year the S&P 500 was down by 23%, while the Nasdaq Composite was down 34% through Oct. 19, according to the Motley Fool website.

But high flying pandemic stocks like Docusign and PayPal Holdings are down 65% or more within the past year, and others such as Peloton Interactive Inc. have fallen more than 90%.

Many brokers’ customers have been through more painful drops and are listening to advice about staying the course, said Cheryl Holland, the founder and leader of Columbia, South Carolina-based Abacus Planning Group, a registered investment advisory firm with more than $1.67 billion in assets.

“Of course, clients are nervous and anxious, but surprisingly few, considering the declines in portfolio values across stocks and bonds,” Holland said. “If a client has lived with us through the dot-com bubble, the Great Recession and COVID, this new era is challenging but we have built-in trust.”

The move by major brokerage firms to shift brokers away from stock picking and toward goals-based planning appears to be paying off. Andy Sieg, president of Merrill Lynch, said earlier that, clients’ emotions are “running high,” but credited advisors with easing their nerves. The number of financial planning reports created for clients was up 48% in the third quarter from the prior year, the company said earlier this week.

“Frankly, it’s a time when clients are looking for advice and what our financial advisors do at levels we’ve never seen before,” Sieg said in an interview with BloombergTV.

Plaintiff lawyers also say that their phone lines are unusually quiet, although they warn it may be a proverbial calm before a storm.

“You’re not going to see a lot of claims filed until two or three months down the road,” Mike Edminston, a lawyer who is president of The Public Investors Advocate Bar Associates, predicted. Short of outright bankruptcies and failures, aggrieved investors typically do not take immediate action in the wake of realized losses, Edminston said.

The PIABA president warned that if a client’s portfolio has a heavy concentration in a particular sector or single equity, the “market-went-down defense” doesn’t work as well because losses were likely magnified.

If advisors want to foster clients’ continued patience, they should keep their focus on a longer time horizon, according to Sieg and other advisors.

“When we look at the short term, clearly we expect to continue to see choppiness in the markets until we get to the other side of the Fed tightening cycle,” Sieg said. “So the challenge here is … to help [clients] keep today’s volatility in perspective, but look medium and long term,” he added. “On that basis, we’re incredibly bullish,” he said.

Advisors at Abacus Planning are making more calls and emailing clients to keep them calm, Holland said. They are also offering specific steps for clients to take during the dip, she added.

“We are focused on tax-loss harvesting, discipline around executing on our re-balancing targets when triggered, and beginning to stretch the maturity of our fixed income from cash heavy to shorter duration individual Treasuries,” she said.

Joe Birkofer, a senior executive with the fee-only RIA Legacy Asset Management in Houston, also has a to-do list for clients during the downturn.

“I’m advising people that this is an opportunity to buy funds and stocks that they want to own over the next five years, not the next five weeks,” said Birkofer, who manages $139 million in clients assets, according to regulatory filings.

“We’re clearly not at the end,” Birkofer added about the volatility. “Overall, my advice is to stay the course.”