Rose Swanger of Advise Finance.
When investors turn to advisors to help them with their retirement and other financial plans, it is usually a good idea to listen to the valuable advice they are paying for — especially during a pandemic that has created a global economic crisis.
However, not all clients are created equal, and there are some of them who just won't listen to reason and think they know more than their advisors even though those clients have little to no experience in investing and related financial issues.
That was the situation that Rose Swanger, principal of Advise Finance in Knoxville, Tennessee, recently found herself in, she told ThinkAdvisor in a phone interview.
One observation she made during the early days of the pandemic, she said, was that her "millennial clients who had the most aggressive risk tolerance score (90 out of 100) prior to the pandemic became the most conservative or froze" when the pandemic started in the U.S.
"I had one couple" — the husband was in his late 20s and the wife in her early 30s — who "actually liquidated [their] entire portfolio to cash despite my reasoning with them" to not do that over concern with what was happening with the stock market, she recalled.
The couple work in IT and, prior to that, were supposed to convert a rollover IRA to a Roth IRA in December, "but they couldn't decide because they didn't want to pay the tax" at the time, so they held off, she said.
Missed Opportunity
"When the market started to dive precipitously, I told them it would be a great opportunity to gradually convert their rollover IRA to [a] Roth and pay the minimum tax," she said. However, she added: "To my surprise, the wife relayed [the] message that her husband thought the market would dip even lower, and they wanted to wait until the market bottomed out. Sounds like they had a crystal ball that the rest of us didn't have."
And so they waited longer. She told them they had their "best opportunity" to make a Roth conversion when the Dow Jones Industrial Average dropped from about 29,000 to about 18,000 in mid-March, she said.
However, at that point, "instead of following my advice," the husband said they were going to change everything they had left in their three IRAs into cash, she recalled.
Shocked, she told them right away that if they did that they would "lock in the loss … and you cannot even deduct that loss" because it's from a retirement account. The husband, however, responded: "I don't care. All I want is cash," she recalled, adding they stood their ground despite her attempts to try and get them to change their minds.
