Clients in decumulation phase require reassurance and belief
Luke Kratz focuses on having a steadying effect on his clients, most of whom are in their decumulation phase. “Stand by your plan,” the senior wealth advisor and senior portfolio manager of The Kratz Financial Group with CIBC Wood Gundy told Wealth Professional.
“It’s simple, but not easy. In fact, it’s very hard. Most clients still require some help in doing that. They require some reassurance. Fundamentally, they want to know that I still believe in what we’re doing, and then they will believe.”
Kratz, who has been an advisor for 30 years and who was this year named one of Wealth Professional’s top 50 advisors, said he tries to reassure clients by ensuring that his actions are always consistent with everything he’s said. He doesn’t panic. He doesn’t try to do tactical things, such as trying to time the market. His often repeated lined is, “this too shall pass”, even when faced with a pandemic, market volatility, and an impending recession.
“Sir John Templeton, the investing pioneer, said the four most expensive words in the English language are: ‘this time is different’,” said Kratz. “So, we use the phrase, ‘this too shall pass’.”
His team of four has $290 million in assets under management and about 150 client families. They’ve retired or are in an optional work phase, but need support as Canadians are living longer and now dealing with rising inflation and interest rates. They need to have a plan for drawing down their investments during a bear market.
Kratz’s team focuses on identifying clients’ investment goals, developing clear, logically written plans to achieve those goals, and then creating portfolios driven by the goals and plans.
“That progression – of goals, plan, and portfolio – gives people a lot of comfort in these times,” he said. “That’s been very powerful for us during this time of coronavirus pandemic, market volatility, and a potential recession. We’re talking about really significant events that rattle all of us.
That’s tough for everyone because we’re in an equity bear market that has persisted.
“We’re in the results business and results are achieving the clients’ goals,” he added. “90% of returns are determined by what an investor does in challenging times and 10% comes from what the portfolio does.”
Kratz works with his clients to ensure they’re clear on their goals and saving what they need to meet them, then he helps them manage their emotions during difficult times.
“I’m absolutely unshakeable in my belief system, and the more I learn about the markets, economy, and people, the more unshakeable I am,” he said. “I never promise or intimate to clients that they’ll have less volatility or higher returns – all the things that we want to promise – because you can’t promise what you can’t deliver. No one has been able to produce lower volatility and higher returns. Usually lower volatility leads to lower returns.”
Kratz said his clients need three things. The first is faith, rather than pessimism, about their future.
“I don’t know how anyone could look at the last 100 years and see only decline in the future,” he said. “The ultimate path is up – and our lives are so much better than other generations that came before us. Life is better on earth than it was even 20 years ago, so there’s no reason to see that that’s going to stop now and just decline.”
Clients also need to follow time-tested principles – to wait it out and stay diversified since market situations always improve. But, they also need to give those time to work.
Finally, he said clients require discipline, in many forms. They need to keep saving for their financial goals and avoid impulse spending, and stay within their plans.
Kratz noted that he doesn’t try to convince clients of any of those three points since “most, in my experience, find it actually relieving.” But, he adds, “it takes a lot of time to become a very good investor, so the volatility doesn’t really get to you as much anymore and you can stay the course.”
Kratz enjoys his, hard-working team and enthusiastic clients, as well as his work. “I’m happier than I’ve ever been in this profession, even with all the tough times,” he said. “In fact, maybe it’s because of the tough times. It’s accentuated everything and made me that much more grateful.”
