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10 Years ‘After,’ Part I

A decade ago this past weekend, Lehman Brothers filed for bankruptcy. Shortly thereafter Merrill Lynch sold itself to Bank of America, and AIG reached out to the Fed for a bailout. In this excerpt from the fall issue of NAPA Net the Magazine, some of the nation’s leading advisors look back at the 2008 financial crisis.

Ask Bill Chetney what he remembers plan sponsors saying during the dark days of the 2008 stock market crash, and he responds with a string of expletives that a respectable publication can’t print. “And I left out all the words that start with F,” adds Chetney, founder of Carlsbad, California-based GRP Advisor Alliance, with a laugh.

More seriously, Chetney does have vivid memories of how the crash impacted sponsors and participants. “Everybody was really in shock,” he says. “Plan sponsors realized, ‘Wait a second, this is not always as simple and clear as it seemed.’”

Ten years later, J. Fielding Miller remembers that the average 401(k) participant’s account balance dropped 35% during that time, and the stress that caused. Miller, the Raleigh, North-Carolina-based chief executive officer and co-founder of CAPTRUST Financial Advisors, also recalls the opportunities the crash created for advisory firms.

“I’ve been doing this for 30 years, so I’ve been through the ’87 market crash, the tech crash in 2000, and then ’08-’09,” Miller says. “The advisory industry recoiled each time, and advisory firms laid people off during those times. But in all three instances, we viewed that time as a great opportunity.” Sponsors became more aware of their fiduciary responsibilities and their need to get help fulfilling them, while more advisors felt motivated to switch to another firm. “Those are great times to prospect for business, because everybody is like a deer in the headlights,” he says. “So we expanded during those times. And if it happens again, we’ll run the same play.”

Memories of the Crisis

We truly live in a global economy. That’s what sticks out in Randy Long’s mind 10 years later, along with how quickly information spread around the world. “It was unprecedented, how far-reaching the economic crisis was, in the United States and around the globe,” says Long, founder and managing principal at SageView Advisory Group in Irvine, California. “For many American companies, things came to a halt. A lot of our clients’ business credit got tightened up, and it really put a damper on their plans.”

The market crash had a far-reaching impact. “It was definitely a cloud hanging over the economy, the markets, and business in general,” remembers Vince Morris, Leawood Kansas-based president, financial services at Bukaty Companies. “At the time, it seemed like a doomsday scenario. In ’07, we started to feel an impact on the economy, and in early ’08 the markets went down. But it was not until September ’08 that things really got more depressing, talking to sponsors and participants.”

Bukaty fielded many calls during the crisis from participants who wanted to abandon equities and run to the sidelines. In his conversations with participants, Morris struck a balance between emotionally connecting and empathizing with what a participant felt, but also focusing on the participant’s long-term goals and likely outcomes. “You need to recognize their fear. You can tell them, ‘I totally understand how you feel: Your $100,000 account balance is now down to $80,000.’ That way, you’re acknowledging their loss,” he says now. “But then you can talk about, ‘What was your goal for retirement yesterday versus today: Has it changed? Do you now want to work forever?’ Once they realize their goal is the same, then you can talk about, ‘How will it impact your account if you pull out today, and then the market goes up again? How would that make you feel?’”

Most participants ended up staying in equities, but not all, recalls Steve Ulian, Boston-based managing director at Bank of America Merrill Lynch. “I remember realizing that people who moved their money to more-conservative vehicles, if they missed out on the first six to 12 months of the market’s recovery, missed out on a lot of upside,” he says. “Especially for people nearing retirement, I remember thinking, ‘That’s incredibly sad.’”

A decade later, the crisis almost seems like a dream to Jim O’Shaughnessy, managing partner of Northbrook, Illinois-bases Sheridan Road. “But I can remember very clearly the amount of concern and tension, and how scared people were,” he says. “The conversations we had with clients near the end of 2008 were about their feeling that the sky was falling. Everyone was really kind of stopped in their tracks, and people were having trouble thinking beyond the immediate crisis.”

Because many employers’ businesses got hurt, they soon looked to reduce their expenses. “Some not only stopped their 401(k) match, they cut back on their human resources staff, and those were often people who worked on the retirement plan,” Miller says. “So that created room for advisors to come in and take that spot. The crash woke up employers to their fiduciary responsibilities, and that created a boon for our business.”

The rest of this four-part series can be found here:

Judy Ward is a freelance writer who specializes in writing about retirement plans.