After one of the most tumultuous weeks in the history of the stock market, wealth managers responded by reaching out to clients to simultaneously reassure them and review their investment strategy.

Discontent and uncertainty appear to have trumped fear and greed among US wealth managers and their clients at the end of one of the most tumultuous weeks in the history of the stock market.

“There’s almost universal agreement across our client base, which is anger at Washington,” said Barry Glassman, president of Glassman Wealth Services of McLean, Virginia. “People are extremely upset at the politicians’ inability to handle the debt crisis and it looks like we may have to wait 16 months until the next presidential election for a resolution.”

Boris Blum, president and chief executive of Wealth Planning and Management of Woodland Hills, California, agreed. "Most clients are furious with Washington in general," Blum said. "They don't believe either the Republicans or Democrats care about the public and only make decisions in their own self interest."

Those feelings also extended to the executive suite.

“We’re disappointed with the political process,” said Ed Kohlhepp, president of Kohlhepp Investment Advisors in Doylestown, Pennsylvania. “Politicians refuse to address the problem, and we’re left with a lot of uncertainty.”

Both Congress and the Obama administration were “unwilling” to firmly address the budget deficit, said Katherine Lintz, chief executive of Financial Management Partners, a multi-family office in Clayton, Missouri. While the markets “probably over-reacted” to Standard & Poor’s unprecedented downgrade of US debt, they also accurately reflected uncertainty about global growth, Lintz added.

“With the developed world governments struggling to make good long-term tradeoffs or outline a vision for the future, it is hard to see where growth will come from,” she said.

Wealth managers reach out to reassure and reassess

Wealth managers responded to last week’s extraordinary market volatility by reaching out to clients to simultaneously reassure them and review their investment strategy.

"We are confident of the long range validity of the investment strategies we’ve helped our clients adopt, despite the apparent irrationality of market behavior in the very short term," said Tim Kochis, principal and co-founder of California-based wealth manager Aspiriant.

"Our really important job is to make sure that our clients don’t act in some way that seriously jeopardizes their long-term success, so we talk them through the options, to help them come to their own conclusions about what makes them feel safe or at least helps them to cope with the stress," Kochis explained. "Most of the time, that conversation results in a comfortable conclusion to make no change, despite the pain."

The run up in bond prices caused Pathstone Family Offices to pursue a "tactical shift," and sell a portion of its fixed income holdings while adding to equities, said Steve Braverman, managing director of the New York and Atlanta based firm. Going forward, Pathstone will “take a more open approach,” and gauge buying opportunities while also evaluating “where there are exits” for current holdings, Braverman said.

Glassman said his clients had been hard hit by lower interest rates, causing their income to drop. As a result, Glassman said he was using more alternative instruments, such as merger arbitrage, managed futures and long-short fixed income and equity strategies.

Neuberger Berman is recommending large-cap multinational companies to clients able to withstand short-term ups and downs, said Matt Rubin, the firm's director of investment strategy. “They benefit from healthy balance sheets, diversified international operations and strong cash flows, and are attractive investment opportunities,” Rubin said.

Plunging stock prices also create opportunities, according to Alan Kufeld, a principal based in Rothstein Kass’ New York office and a member of the firm’s Family Office Group.

“Large dips downward likely cause a decrease in values in retirement accounts,” Kufeld said. “This creates the potential opportunity for a Roth IRA conversion. While traditional IRAs grow tax-deferred, Roth IRAs grow tax-free. 

Upon conversion, the taxpayer would pick up the account value into income. A lower value means a lower amount of income to be picked up. In addition the tax rates are still low, which adds to the benefit.”

Mixed outlook for the long term

As for the long-term outlook, industry experts are mixed.

Financial turmoil in Europe may have severe consequences for the US, according to Mark Vecchio and Christina Moretti, attorneys for Venable, a New York law firm specializing in cross-border financing.

In a paper released last week, Vecchio and Moretti note that US ownership of securities in the European periphery’s private sector is approximately $70 billion. “Ratings downgrades or insolvencies at any of these companies could result in financial losses for US investors,” they wrote. “Similarly, collateral damage is likely to spill over to US institutions as increasing funding costs and other adversity hits the European banks to which these institutions are creditors.”

What’s more the attorneys added, “according to Fitch Ratings, the top 10 US prime money market funds have about half of their assets invested in securities issued by European banks.”

But in Fortigent’s summer economic and market outlook, also released last week, the influential wealth management outsourcing firm noted that, “despite perceptions to the contrary, the US economy and global economy are not, in fact, in recession. Growth is slow and market anxiety has increased dramatically, but there are positive signs… Looked at objectively, the recent market decline seems almost exclusively caused by emotion and panic.”