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* Anxious investors hounding their advisers
* Experts advise against panicky changes in portfolios
* Alternatives include gold, managed futures
By Lauren Young and Beth Pinsker
NEW YORK, July 27 Americans are bombarding
their financial advisers with questions about what to do if the
U.S. government defaults on its debt. Call volumes to major
wealth managers have risen - and a lot of calls are about
whether they will get badly hurt by the events in Washington.
Concerns seem to be escalating as the August 2 deadline
looms for the U.S. government to extend its debt ceiling or
face the prospect of being unable to pay its bills.
While people aren't yet heading for the hills - no talk in
the mainstream at least of stocking up on weapons or sticking
money in a suitcase - many are asking their financial advisers
about converting to cash or selling bonds.
"Should we tell people to build a bunker and bury their
money? Then you'd need the guns," said Lydia Sheckels, chief
investment officer with Wescott Financial Advisory Group, which
manages a portfolio worth $1.5 billion and has offices in
Pennsylvania, Florida and Washington, D.C.
Instead she says, the best advice she can offer is that
investors have to be broadly diversified. This is not the time
for that risky bet on one emerging market or commodity.
Between water cooler conversations at the office and the
pundits on TV, it's becoming impossible to ignore the noise and
just sit and wait for the crisis to be over. For financial
advisers, that means a lot of touching base this week.
Leslie Farnsworth, 36, was one of those content to sit out
the frenzy, and hadn't opened up account statements in months.
She wasn't even especially worried about the state of the
financial markets - until her adviser showed up at her office
with two colleagues to review her investment portfolio.
"Is it really dire?" wondered Farnsworth, who is CEO of
FrogDog, a consulting firm in Houston. Her adviser, who works
at UBS, said: "We don't need to sit tight. We need to change."
Those changes included dropping American Funds' Growth Fund
of America for Wells Fargo Growth Fund, due to the
underperformance of the former.
Farnsworth's adviser also shifted money out of stocks into
less risky investments, including a 15 percent allocation in
Princeton Managed Futures, which is designed to reduce
volatility by betting on futures, options and other securities.
She now has a 50 percent allocation to equities, which is low
for a person of her age.
The prevailing wisdom from most advisers, however, is to
assess but sit tight. Matthew Tuttle, the chief investment
officer at Tuttle Wealth Management which is based in Stamford,
Connecticut, is among those who are optimistic a deal will be
reached in the nick of time: "The debt deal will eventually be
worked out in some way, and we will react to it when it
For wealth managers at funds and brokers there has been a
lot of contact with clients in the past few weeks, often by
At Fidelity Investments [FIDIN.UL], phone volumes are
slightly higher, although customers "are not making any
significant moves" to cash or other conservative investments,
according to Adam Banker, a Fidelity spokesman. Fidelity
managed more than $3.6 trillion in assets as of June 30.
"I'd estimate that our call volume increased by a third
last week, and is up 50 percent over that this week," added Jim
Russell, regional investment manager for U.S. Bank, which
manages $60 billion in client accounts. Surprisingly, one of
the primary questions his clients are asking is whether this is
an opportunity to get more exposure to capital markets.
He said he is hoping the situation will be like it was
three years ago, when Congress initially voted down the
Troubled Asset Relief Program (TARP) for bank rescues and the
markets dropped, only to rebound a few days later after it
Americans usually get a bad rap for having short memories,
but many have not forgotten the most recent financial crash.
"The ones who are concerned are the ones who have been fretful
since 2008," said Sheckels of Wescott Financial.
She has one client in his 80s who calls her daily, worried
because he is now 100 percent in a U.S. debt money market fund.
"He's our outlier," she said. "He used to be growth-oriented,
but what happened in 2008 hit him very personally. But if you
can't find safety in short-term Treasuries, there's no where
left to go."
Out of 650 clients, Scott Tiras, a senior financial adviser
with Ameriprise Financial (AMP.N), has only one who moved any
money around. "He emailed me and said 'I have to sell all the
equities.' Mind you, he didn't say sell the bonds. We've
clearly and strongly communicated with our clients that our
advice is not to make adjustments."
So, in summary, besides calming fears and holding hands,
what actionable advice are managers offering?
*If you are thinking about moving to cash, think carefully.
"Market timing has never worked very well in the past," said
Frank Armstrong, president and founder of Miami-based Investor
Solutions, which manages $500 million. "Predictions are easy,
while accurate predictions are difficult. A few people always
get it right, and they never let you forget it. But most people
lose the wager and generally don't advertise their failure."
*Consider alternative assets. Cliff Caplan, certified
financial planner and president of Neponset Valley Financial
Partners in Norwood, Massachusetts, said: "I've extensively
used managed futures, long/short strategies and market neutral
funds. I have also made use of the FDIC version of structured
notes that utilize futures contracts for specific strategies
while guaranteeing principal."
Yet at the end of the day, "I am still recommending that
the majority of the portfolio stay the course," Caplan says.
*Diversify with gold but don't go overboard. "Our biggest
question is in not owning gold - especially since we have in
the past. There is just so much hype about gold, everyone
thinks they should own it. But potential volatility has me
worried," said Bill DeShurko, author of "The Naked Truth About
Your Money" (Penguin) and president/owner of 401 Advisor, LLC
in Centerville, Ohio. In conjunction with a potential gold
drop, DeShurko sees "a bump up in the dollar with a budget
agreement, but then the trend down will resume."
Added Caplan, "For very nervous clients, I have apportioned
a percentage of their portfolio to the gold exchange-traded
*Rethink asset allocation. "On the bond side we have both
shortened duration to protect against rising interest rates and
hedged against a falling dollar by including foreign bond
positions," said Jon McGraw, president of Buttonwood Financial
Group, LLC in Kansas City, Missouri. "We are holding steady
with our equity exposure as we are well-diversified both
domestically and internationally. And with about 25 percent of
portfolio assets already invested in alternative investment
strategies, we feel we are as well positioned as we can be for
either a compromise or failure."
(Additional reporting by Lou Carlozo, Editing by Martin