How an Advisor Saved an Energy Exec From a Big Investing Mistake

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March and April of this year were two of the most difficult months ever for investors of all kinds, and that's especially true for those who were heavily invested in any of the sectors hit hardest by the COVID-19 pandemic and accompanying economic downturn.

Jared Snider, a partner and senior wealth advisor at independent firm Exencial Wealth Advisors, which has assets under management of about $2.07 billion and offices in Connecticut, Oklahoma and Texas, shared the cases of two couples and one single client among the 1,000 or so families and organizations that make up his firm's client base.

One of the two couples are in their mid-50s, were heavily invested in an energy firm, and averted a near economic catastrophe with his help, he said, noting they have been clients of his in the Oklahoma City area for about six years.

The couple's combined assets grew in 2019 to about $1.6 million and their total liquid net worth, including retirement accounts with the energy firm they both work for, was about $3 million, he noted.

The husband is an executive at that company, and Snider had started discussing some "what-if planning" with the two of them for a while, he recalled. The wife was interested in retiring early, while the husband was about three years away from retiring.

There was, however, one big risk in their portfolio: About 50% of their investable liquid assets were in the company they work for, Snider said.

It's an investing mistake that company executives often make — one that advisors are in a good position to fix.

"We were fortunate in that case in that we began having those proactive conversations around what was really in their best interest," and they unpacked the "risks associated with [that] concentrated investment," Snider said, explaining: "We started diversifying that position to a smaller degree [at the] end of 2019 and then moved out of that position" entirely by the end of January.

"They were fortunate," he noted, to have been able to do that just in time to avoid the huge market downturn in March and U.S. oil prices falling below zero in April.

"To me, that's an example of when you are proactive, you can have the ability to get out ahead of some of those risks that are unknown," according to Snider. After all, he said: "No one really saw COVID coming [and] no one was really seeing negative oil prices on the horizon" either.

The couple still had some concerns about what was in their portfolio as they moved out of investing in the one firm they were most familiar with, he said, noting they moved into diversified holdings in multiple securities.

As with most clients, their openness to take action to shift their portfolio strategy came down to a "critical life event" — in their case both of them looking to retire and the husband "not wanting to have so much of his life's work and resources tied up in one company," Snider explained.

And that energy utility company's stock the couple was so heavily invested in saw over a 50% decline after they sold it all off, Snider told ThinkAdvisor, pointing out: "It was impacted pretty significantly in March … If they had continued to hold it … they would have been in a meaningfully worse financial position as things stand today."

On top of that, "as the market was dropping in March, given that they had some significant dry powder … from a buying standpoint, they were ready to make some additional buys in the market while things were pulling back as they were in March," Snider said, adding: "We were able to get some timely buys made for them and they were eager to do that."

They also had some airline and cruise line stock exposure in their portfolio. "We exited those positions in early March as it became clear that the economy was going to take a hit" and nobody would be traveling, Snider said.

Juggling a Pandemic With Energy Pricing Panic

The single client that Snider told ThinkAdvisor about was a Texas energy company executive in his early 60s. The executive caught COVID-19 and struggled with it for 16 days before recovering fully, Snider noted.

"Trying to juggle the fact that he was ill while energy prices were going haywire was… a pretty big challenge for him," Snider said.

Easing Clients' COVID-19-Created Concerns After Retirement

The other Oklahoma City-area couple Snider told ThinkAdvisor about were long-term clients in their 60s, with grown kids like the energy executive and his wife. The husband in this case was a business owner who sold off his company in late 2019, and the couple had about $3.5 million in assets between them, according to Snider.

The advisor helped them create an integrated financial plan for retirement, making sure they had a "war chest" of preservation assets built into the portfolio, and they were going to take fixed income distributions in retirement, Snider said.

"Coming into March and certainly as the market started weakening, this former business owner is seeing" what is happening and grew concerned because he just retired, just sold off his company and "turned off that source of income" from his business and was relying on the financial capital he accumulated over the years. "It was emotional and stressful for him," Snyder said.

The husband and Snider were in communication by phone and video conferencing since the start of the pandemic in the U.S. and, despite his concerns, "I never heard panic in his voice," Snider said of the husband, noting what helped was that "he didn't have a large position in energy."

On the other hand, Snider added: "His wife had a very high level of concern and required more reassuring. Finances aren't necessarily her wheelhouse," and here she was seeing the news about what was happening with the market and the pandemic, and it was "pretty stressful for her," the advisor noted.

However, it didn't take that long — a 20-minute phone call in early April — to reassure her by explaining they had planned for this. Although they didn't know a pandemic would happen, Snider and her husband were aware there would likely be a market pullback and negative event during the course of their retirement, he explained to her.

Granted, it was unfortunate that a major negative event happened so soon after retirement, but there was a plan in place that was being deployed, he said. The wife's mind was put at ease. Of course, it also helped that the markets bounced back since then.

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— Check out 3 Clients Wanted to Cash Out. Their Advisor Talked Them Down on ThinkAdvisor.