Clients Slam Advisors with US Default Concerns

I have recevied a bunch of calls about the fear currently in the market.  This is a good article that discusses the issue, from Fundfire.  –  Reeve
July 28, 2011

Financial advisors are being inundated with calls from investors fretting over what steps to take if the U.S. government fails to raise the debt ceiling. So reports Reuters.

As the Aug. 2 deadline for raising the debt limit nears, wealth managers say they are fielding calls from anxious investors who are asking how bad the damage to their portfolios will be.

Investors are worried that any downgrading of U.S. government debt by the rating agencies – or the more remote possibility of default – will eat into the value of Treasury securities, The New York Times reports.

The problem, says Carl Kaufman, who helps manage about $2 billion at the San Francisco-based Osterweis Strategic Income fund, is that investors have nowhere else to go.

Indeed, Citigroup chief equity strategist Tobias Levkovich tells the Times that “safety is a relative concept… there have to be alternatives, and the alternatives aren’t that wonderful.”

A spokesman for Fidelity Investments, which managed more than $3.6 trillion in assets as of June 30, tells Reuters that phone call volumes are up, but clients aren’t “making any significant moves” to cash or other conservative investments.

Jim Russell, a regional investment manager for U.S. Bank, which manages $60 billion in client accounts, estimates call volume rose by one-third last week and is up by 50% this week. He says clients have surprised him by asking if now is the time to increase exposure to capital markets.

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While few investors are cashing out, many are seeking advice on converting to cash and selling bonds.

Wescott Financial Advisory Group CIO Lydia Sheckels, whose firm manages portfolios with about $1.5 billion, says she isn’t telling people “to build a bunker and bury their money.” Instead, she’s advising clients to ensure they are broadly diversified and not to be making risky bets on a single emerging market or commodity, Reuters reports.

Most advisors are reviewing portfolios but aren’t making big changes. Matthew Tuttle, CIO of Stamford, Conn.-based Tuttle Wealth Management, believes a debt deal “will eventually be worked out” and says his firm “will react to it when it happens.”

But not all advisors are content to sit tight and wait out the deadline. Houston-based businesswoman Leslie Farnsworth says her UBS advisor visited her office with two colleagues to tell her “we need to change,” a suggestion that included dropping a U.S. funds’ growth fund.

Farnsworth’s advisor also moved money out of stocks and into managed futures. Farnsworth, 36, now has a 50% allocation to equities, which is low for her age, Reuters reports.

However, Scott Tiras, an advisor with Ameriprise Financial, says only one of his 650 clients has shifted his portfolio by asking to sell all the equities. “He didn’t say sell the bonds,” notes Tiras, adding that his office has “clearly and strongly communicated with our clients that our advice is not to make adjustments.”