I firmly believe financial advisors need to be leaders for their clients by helping assess financial needs, creating long-term financial plans, and leading clients toward financial goals with a disciplined approach. However, it seems there is a market downturn at some time each year that tests the advisors’ and clients’ discipline. They often become nervous about the market and subsequently decide they want to move a portion or all of the account to cash.

We are often asked, “How does CLS determine when to move clients to cash?” Our response to this question is almost always the same:  we feel CLS’s role is to help keep clients disciplined to their risk based allocation, not to decide when it is appropriate to move them in and out of the market. We believe it is the financial advisor who is better suited in determining whether the client is no longer comfortable in participating in the market since the advisor has an individual relationship with the client, understands the client’s risk level, and recognizes how CLS fits into the client’s overall financial plan.

Because we feel the decision of moving in or out of the market is best managed by the advisor, we strive to make it easy for both our clients and their advisors to adjust the cash allocation within the portfolio and re-enter the market when they deem it necessary. Clients can move back into the market with a simple call to CLS. Additionally, clients can sign a Limited Power of Attorney (LPOA), which allows their advisor to make some account changes on their behalf.

CLS recommends all clients who go to cash have a defined way of getting back into the market so they don’t miss out on rebounds.

One way to gradually re-enter is through a Dollar Cost Averaging (DCA) plan. These types of plans are good to have in place, since it’s not uncommon for portfolios to lag during market rebounds because the advisor and client simply forget to readjust the portfolio after going to cash when the market is declining or bottoming. CLS has a DCA option that allows clients to specify the amount they want re-invested and the time period they want it executed in. Many advisors also use this option at high points in the market to “lock in” gains in the portfolio and then reinvest.

Advisors, as you continue to lead your clients to their financial goals, continue to encourage them to stay disciplined to the plan you have created. Clients, when you are at times no longer comfortable participating in the market and want to move to cash, consult your advisor on creating a DCA plan to help you reinvest in the market when you are ready.

1937-CLS-11/27/2012