Advisor pulls from past to navigate stormy present

Industry veteran shares lessons he learned from past bear markets and how he’s putting them to work today

Advisor pulls from past to navigate stormy present

In an unprecedented moment for the markets and society, one advisor is drawing on his nearly 30 years of experience to carry his clients and practice through the storm.

Rob McClelland, founder of the McClelland financial group and a senior financial advisor with Assante Capital Management, is using lessons he learned during the dot-com bubble of 1999-2000 and the financial crisis of 2008 to guide his clients through. Those experiences have taught him to hold on tight, avoid playing to panic and greed, and focus on regular communication with clients.

“If you've got a financial plan in place, and your situation hasn’t changed, there's no reason to deviate from the plan,” McClelland said when asked what message he’s taking to clients. “We’re communicating that message by different methods like videos, a podcast, email, and newsletters.”

McClelland’s most difficult experience in a bear market was during the dot-come bust of 1999-2000. He says the damage there was done more by greed than fear. He recalls losing clients because his value-oriented portfolios weren’t matching what some of the growth tech stocks were delivering. When the market corrected in 2000, though, he saw those former clients “losing their shirts”, down 50 or 60 per cent. He even offered some growth fund opportunities to his clients during the boom. But those quickly went bust while his value plays stayed steady.

“That taught me not to play with the portfolio,” McClelland said.

2008, in his view, was a market shaped more by fear than greed. That moment, when the market went below 50 per cent, taught him not to liquidate unless absolutely necessary. His only liquidations in that time were necessary to make payroll for his firm and make ends meet for his family.

In the long run, though, the clients that went to cash in 2008 lost out. People were selling $1 million accounts at 30 per cent down, cementing a serious loss. Even when the markets started rebounding the wider news was bad, unemployment numbers and word of a “Great Recession” kept investors scared. McClelland thinks that’s one lesson from 2008 that will play out today.

“The market is going to turn on this one and the news is still going to be horrible,” he said. “We’re going to start to see China get this under control … that will be the sign that we can get through this. That's when the markets are going to turn, but the news is still going to be horrible in North America and Europe for quite a while.

“I learned during ’08 that you can’t move to cash, you can’t try to move around these gyrating markets.”

McClelland’s position, then, is to hold steady. Aside from rebalancing, he’s not suggesting any major investment moves for his clients. They’ve increased the “band” for their rebalancing formula from four per cent to five per cent, as well, accounting for the greater volatility in the market. Clients with withdrawal plans are now pulling their withdrawals 100 per cent from fixed income so they don’t cement losses on the equity side of their portfolio. McClelland is also recommending that those clients withdraw less. Travel restrictions and restaurant closures seem like a reality for the foreseeable future, meaning expenses for those clients are likely to go down dramatically.

McClelland isn’t alarmed by the tepid response markets have given to dramatic rate cuts from central banks and fiscal stimulus from governments. He thinks the deeply personal nature of this crisis is compounding investor panic and hurting consumer confidence. When the dust settles, though, he believes policymakers have laid fertile ground for markets to grow again.

“Advisors need to communicate, communicate, communicate right now,” McClelland said. “Just overcommunicate. We’re getting messages from clients thanking us for reassuring them in this time. Thanking us for the podcast or the newsletter.

“When clients call or email, get back to them as quickly as you can and try to put them at ease. Remind them if they trigger a loss, they can't get it back because right now I can't tell you when to get back in.”