The markets are in a downward spiral. Wall Street stalwarts are toppling with alarming succession. Your office reverberates with panicked calls from clients, demanding to know what you’re doing to protect their investments. Now is not a good time to be a money manager—so what do you say when the phone rings?
“Money managers need to be honest with their clients, particularly if the underperformance is related to something they did,” says Paul Malizia, a principal with Hewitt Associates. “The question is, does the manager have an adequate response, and can they justify the underperformance?”
Malizia says his main message to clients is not to overreact, and he reinforces the fact that the sky is not falling nor is the world coming to an end.
Zainul Ali, a senior asset consultant with Towers Perrin, explains that constant investment education—particularly when times are good—is the only way for plan sponsors to combat plan member panic. “It’s too late to say anything now,” he says. “Plan sponsors should have been talking to their members all along, instead of closing the barn door after the horses have run away. Investors can be apathetic, but it’s the responsibility of the plan sponsor to ensure that plan members pay attention.”
Ali says the more informed plan members are in the grand scheme of things, the less they will be bothered by sharp movements in the markets. Kim Duxbury, assistant vicepresident, marketing and communications, group retirement services, with Sun Life Financial, agrees. “Education is critical,” she says. “One of the challenges we face is that plan members sometimes think it’s Sun Life funds or the employer’s funds that are at fault for poor performance—when in reality, it’s not; it’s the market. So we need to hammer that message home that it’s not just money at Sun Life, it’s money anywhere.”
Duxbury says the message from Sun Life has been consistent over the years: stay the course. “We encourage them to think about diversification and to avoid making emotional decisions based on what they’re hearing on the radio when they’re driving home.”
Malizia points out that Canada’s banking sector is in much better shape than that of the U.S., and that despite recent writedowns related to the subprime mortgage fiasco, the Canadian government hasn’t had to step in to save the financial system. “We’ve seen things like this before,” he says. “It’s not like it’s something new.”
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