People are assaulted with a constant barrage of bad news about the economy simply by picking up a newspaper. Banks and investment firms are responding by fielding more calls from worried clients, and increasing communications to put the downturn in perspective and provide hope for the future.
Chris Ray, CEO of the Ramey Agency, said financial services companies that were prudent and conservative should communicate that.
“I think, generally speaking, you are seeing a flight to quality with consumers,” Ray said. “Because the economy is going through unchartered waters, a lot of consumers are frozen like deer in headlights. I don’t think anyone can predict how long this mess can continue. Our counsel is to let stakeholder groups know the company is safe, strong and secure. That has been the resounding message.”
Two the Ramey Agency’s major banking clients are BankPlus based in Belzoni, and the Stevens Inc. Investment Bank based in Little Rock, Ark. Ray said both companies are strong and well capitalized. They didn’t engage in risky lending practices.
BankPlus and Stevens Inc. are sharing their story through advertising, direct mail and online.
“We are lucky our two clients are in strong capital conditions, and have a good story to tell,” Ramey said.
Century Investment Group in Natchez also has found value in communicating more regularly with customers. The company has been communicating for a long time by regular mail, but recently also started e-mail reports and quarterly economic reports.
Steve Plauche, a partner with Century Investment Group, said the quarterly economic reports detail historical information about times of market declines, how long they typically last and what to expect.
“We are trying to reassure people we have been through this before, and not that long ago,” Plauche said. “In 2001 and 2002, we had plus 30 percent pullbacks. We came back from that in 2003. There are different reasons this time, but it is not fundamentally different. It is still wreaking the same destruction and pain, and making people lose sleep at night.”
Plauche feels it is important to communicate with clients more frequently emphasizing that Americans have survived this before, and have always bounced back with a much stronger economy and recovered their loses. While it is very difficult for people to see a monthly statement showing loses of eight to 10 percent, until someone actually sells, they haven’t realized a loss.
The company serves approximately 500 families and has only had four or five who have sold while the market is so far down. Some people are investing now that prices are so low. The company primarily deals with retirement accounts, for the most part insured accounts that have guaranteed monthly withdrawals.
“We are really not a stock house,” Plauche said. “We are much more a financial planning and consulting shop.”
The increased communications with clients has been welcomed.
“We have a lot of feedback from clients; they appreciated it,” Plauche said.
People skills are extremely important for financial advisors during turbulent times, said Neal Clement, a financial advisor who is a vice president with the Stanford Group Company, Tupelo office.
“An informative, patient and understanding attitude is key to communicating successfully with investors,” Clement said.
Clement’s strategy for communicating with clients includes:
• Validate the fears of clients during turbulent times instead of trying to mask the volatility of the market.
• Initiate factual information about clients’ accounts to help them look at losses, or perhaps minimum gains, realistically.
• Talk to clients about something other than their accounts. After all, money isn’t the only aspect of the relationship.
• Access future goals and time horizons and re-evaluate each to ensure clients that investment recommendations are based upon their individual situations.
• Listen more than you talk to clients. Be slow to speak and quick to listen to learn more about and from them.
Ashby M. Foote III, president of Vector Money Management (VMM), also has heard from many concerned clients, especially in the past three month. In response, VMM has provided updates on recent economic and market events, as well as sharing some thoughts on what lies ahead.
“The crux of today’s crisis is a breakdown in the global banking system,” Foote said. “The banking system provides an important function in the economy. It acts as an intermediary for the flow of capital between savers, lenders, investors and businesses. As one of today’s modern networks, the banking industry is very complex and highly integrated. The industry was already struggling with billions of dollars in housing-related write-offs when it was severely compromised by the bankruptcy of investment bank Lehman Brothers on the 15th of September. The resulting seize-up of the banking system caused havoc throughout the rest of the economy as availability to deposits and funds became uncertain.”
Foote said the federal government has been working for the past year to address problems in the credit markets and some of the major banks. Governments and central banks from around the world have joined forces to restore stability to the world’s banking system and liquidity to the world’s economy. Banks have been rescued, rates have been cut and stimulus programs have been announced, all with the common goal of reinvigorating world trade and the global economy.
“These actions are an unprecedented effort of global cooperation and stand in stark contrast to the isolationist actions taken some 75 years ago that turned a financial crisis into the Great Depression,” Foote said.
He sees several reasons for optimism for the future:
1) The dramatic actions by governments around the world are beginning to thaw the frozen credit markets.
2) The TED spread (T-Bill minus Eurodollar rate) has dropped from a high of 457 bps in October to 195 bps today. The TED spread measures the risk in the banking system as it looks at the difference between the T-Bill rate (risk free) and the Eurodollar rate (rate banks lend to one another). The difference represents the fear and, therefore, risk banks perceive in lending to one another.
3) Letters of credit (LOC) issued by financial institutions insure 90 percent of the $13.6 trillion of goods traded annually. The drop in LIBOR (London Interbank Offered Rate) from its peak of 4.82% on Oct. 10 to the current 2.18 percent is a good indication that availability of LOCs for international trade is improving.
4) Thanks to open spigots at the Federal Reserve, the monetary base of the U.S. has increased dramatically with total reserve bank credit doubling from $1 trillion a year ago to $2 trillion today.
5) Lost in the tsunami of bad news is the drop in oil and gasoline prices – from $145/bbl and $4/gal to $55/bbl and $2/gal. The $2/gal drop in gasoline represents a $300-billion annual savings to U.S. consumers.
Foote believes today’s market valuations incorporate a large “fear” discount.
“Fear is a powerful emotion, and in some cases it can become self-fulfilling for a period,” he said. “Eventually, though, extreme emotions dissipate. At some point, activity will resume normal levels and the building blocks of entrepreneurship and innovation will reemerge as the natural drivers of economic growth. A time frame for recovery is dependant upon too many variables for an accurate prediction, but rest assured that when the premium for taking risk is high enough, fear will give way to the healthy pursuit of outsized investment returns. With that will come a return to normalized valuations for stocks and bonds.”
Contact MBJ contributing writer Becky Gillette at firstname.lastname@example.org.