Tumultuous times in the capital markets are always unsettling to investors. The extreme market gyrations of September and October 2008, which cut the market almost in half from its closing high on 9 October 2007, will go down in history as one of the most challenging periods in global finance. These are the times when investors come to advisers seeking some type of comfort and, most certainly, some type of direction. Unfortunately, advisers may be as shell-shocked as their clients, which can make the former’s provision of comfort and guidance to the latter a relatively tall order. Market crises can yield unprecedented opportunities that are often overlooked by advisers, who may be overwhelmed with trying to make sense of events beyond their control. There is a method of dealing with even the most extreme crises that can enable advisers to provide useful answers to angst-ridden clients.

This pragmatic and effective method encompasses the following steps:

• Put out the most immediate fire
• Examine the real issues
• Take stock of what’s left
• Strike while the iron is hot

Put out the most immediate fire.
We suggest that advisers take this action in any market environment because wealthy individuals and families seek advice most often when they are experiencing some type of adverse event, transition, or problem. They feel inadequate to find a solution on their own, so they seek the advice of experts. In a sense, this action flies in the face of a basic component of providing unmatched service to clients through what we call the Wealth Management Continuum™, a process by which families set investment goals. It addresses four areas:

1. Understanding the influence of generational biases and the (often subconscious) assignment of roles to family members
2. Identifying family needs based on the roles assigned
3. Setting individual and family goals designed to satisfy those needs
4. Incorporating goal-based asset allocation, asset location issues, and investment vehicle selection

Most adviser-client interaction occurs during the fourth step of the continuum; the influence on decision making wielded by Steps 1–3 is completely ignored. This interaction occurs at Step 4 because it is the step where clients are feeling the most pain or uncertainty. They feel this pain or uncertainty (the “fire”) so acutely that they cannot realistically take part in any discussion that does not directly address it. Therefore, the astute adviser must address the fire promptly and efficiently; doing so will enable the client to understand and accept the longer-lasting solution the adviser needs to provide, the solution that the client, however unconsciously, has come to the adviser to find.

Examine the real issues.
After the immediate fire has been acknowledged and addressed in some satisfactory fashion, advisers have the opportunity to guide the clients in stepping back to survey the real situation. Have they lost half their fortune? That’s what happened to the Rockefellers during the Great Depression. And what did the Rockefellers do? They put up 14 buildings, which would eventually become Rockefeller Center! The family seized an unprecedented opportunity to regenerate its legacy by giving back to the local community and the economy and by educating its own family members.

Whether individuals or families have lost little, half, or even most of their financial wealth, a crisis provides advisers with a great opportunity to help clients understand what’s really happening and how the effects of the crisis can be exploited to achieve clients’ goals. At such times, clients tend to make the worst of what is happening. What goals, if any, will be adversely affected in the long term? What short-term goals may be affected? Is there a Plan B that may offer another option for achieving goals? By meeting with clients and assessing the effects of the crisis on both short-term and long-term goals, advisers can offer clients the ability to assess their situations and put things in perspective.

Take stock of what’s left.
After examining the reality of a client’s situation — which may not be as adversely affected as initially thought — advisers can guide the client in assessing the available opportunities. As the Chinese proverb says, ”In every crisis, there is opportunity.” After advisers help clients assess the effects of the crisis on the attainment of their goals, many clients will realize that their ability to reach their goals may not have been affected at all. With the media’s comparison of the current crisis to the Great Depression, an adviser who can help clients see opportunities available to them will be a breath of fresh air in an otherwise gloomy scenario.

Warren Buffett is the easiest comparison to the Rockefellers’ ability to see the larger picture. Buffett made two investments representing the private sector: a $5 billion cash infusion in Goldman Sachs, which immediately led other investors to snap up $5 billion of the company’s stock, and a $3 billion investment in General Electric, which Buffett labels as the “backbone of American industry.” And investors don’t have to be Warren Buffett to take advantage of such opportunities! In every crisis, residual wealth may be available for reinvestment. Not being completely tunnel-visioned by daily market gyrations can open investors’ eyes to opportunities, perhaps in unexpected places.

Strike while the iron is hot!
By helping investors see the opportunities and giving them the confidence to act on those opportunities, advisers have what may be a once-in-a-lifetime chance to cement a multigenerational relationship permanently. Why is this such a tremendous opportunity for advisers? It offers them a singular space in which to become invaluable to their clients from multiple perspectives. The goals of families of wealth in “normal” times may be exponentially enhanced during times of crisis. The true wealth of a family consists of not only its material assets but also its intellectual capacities, human capacities, and social capacities. In fact, these other forms of wealth constitute 75 percent of the total family wealth! The material wealth makes up only 25 percent, but that 25 percent is focused on almost exclusively.

When advisers and clients focus primarily on the material wealth (both financial and nonfinancial), they miss unprecedented opportunities to regenerate the wealth for generations to come. In times of crisis, the remaining material wealth may be redeployed in ways that pay off exponentially in the long term. The opportunities are vast!

A family can enhance all forms of its wealth if it

• Educates family members on financial and investment matters
• Creates or enhances a philanthropic legacy for the family
• Educates family members on what material wealth can mean to their lives
• Educates the family on the need to regenerate the wealth from generation to generation by developing dynamic stakeholder owners¹

At no other time can such reinvestment in all forms of the family wealth yield such powerful results for the family. Any adviser who helps wealthy individuals and families see such opportunities during times of crisis becomes a beacon of light in an otherwise dismal investment scenario.

Lisa Gray is Founder and Managing Partner of Gray Matter Strategies, LLC.