Every advisor knows what a correction sounds like. It isn’t the market data. It’s the voicemail notification, the 7:40 a.m. “quick question,” the client who has read three headlines before breakfast and wants to know whether they should move to cash.
Those calls are expensive—for the client and for the advisor. A poorly timed move to cash can materially alter a client’s long-term outcome. Moving to cash is how unrealized losses become realized. But there is a cost for advisors as well. The time and energy it takes to talk clients off the cliff is time and energy not spent on more productive matters. In my experience, these responses to a correction are not purely a function of how far the market has fallen. They may say more about how the client’s income is structured.
Most retirement income plans ask the client to do something difficult during a downturn: sell shares at depressed prices to provide next month’s paycheck. Even when the plan anticipated this, even when the client nodded along in the meeting, the act of liquidating into a falling market feels like an error being committed in real time. That feeling is the trigger.
The Portfolio Waterfall is built to answer a question just as important as return or cost: “Will this help the client stay invested?” Too often, when a sound plan meets a rough stretch of market, the client, not the strategy, breaks first.
The Portfolio Waterfall reorders where income comes from. Withdrawals are funded first by the cash flow the portfolio already produces—dividends, interest, and capital gains distributions. These flow into a stable account that the client draws from. The goal is to avoid liquidating volatile shares to create the paycheck.
The behavioral consequence is the point. During a drawdown, the client sees a visible pool of cash covering the bills while growth holdings are left alone. They are not being forced to liquidate volatile holdings simply to fund the next paycheck. The decision that would have prompted the call has been removed from the plan’s mechanics.
This is a meaningful distinction from reassurance. Reassurance asks the client to override fear with discipline. Structure helps remove the occasion for fear.
WHAT THE RESEARCH ADDS
The American College of Financial Services is publishing a working paper by Dr. Chet R. Bennetts that examines the Portfolio Waterfall directly. Its central finding is that the structure helps clients stay invested and supports healthier financial behavior.
The explanation Bennetts offers is worth understanding because it changes how you present the strategy. The research focuses in part on two systems involved in financial decision-making: the Executive Control Network, associated with deliberate, goal-directed thinking, and the Default Mode Network, which is more closely tied to internal narratives, emotion, and self-referential thought. During periods of market stress, the balance between those systems can shift in ways that make disciplined financial decisions harder.
In other words, the client’s capacity to follow a plan may be weakest at the moment it is needed most. A plan that requires a difficult, analytical decision in the middle of a panic is asking the client to rely on the very kind of thinking that stress can impair. A plan with the response already built into its structure makes calm the default rather than an act of will.
The paper points to a second factor: clients who participate in building their plan and understand what they own and why tend to hold on to it more firmly. That argues for helping clients understand the Portfolio Waterfall—and the purpose of each component—before volatility arrives, rather than explaining it during a downturn when fear is already driving the conversation.
Extended periods of strong markets can make advisors and clients forget what a downturn feels like. But there will be another downturn. No one knows when, how long, or how severe it will be.
Two things follow for practice management. First, the work that prevents panic happens at onboarding, not during the correction—in how thoroughly the client understands the flow of money through their own portfolio. Portfolio construction isn’t only about financial outcomes; it should also account for how likely the client is to stick with the plan when conditions deteriorate.
Second, the calls you do receive may sound different. Some clients, seeing income continue while prices fall, ask about adding to positions instead of exiting. That is a conversation worth having.
No structure eliminates market risk, guarantees income, or ends every anxious call. But a plan that does not force clients to sell into weakness removes one of the most immediate reasons they reach for the phone—and that is worth more than a well-argued email about staying the course.
