WITH AN AVERAGE NET WORTH of $100 million, Brian Pfeiflers clients dont need to worry about day-to-day stock market moves and yet theyre riveted. Despite the fact that they have, in many instances, generational wealth, almost everyone is attuned to this just-in-time world that we live in, says Pfeifler, a Morgan Stanley lifer whose $13.7 billion practice is based in New York.

Speaking with Barrons Advisor, Barrons fifth-ranked advisor nationally explains how he responds to those nervous clients. He predicts a U-shaped recovery from the pandemic-fueled crash, and tells us where hes looking to invest. And he details a pivotal decision years ago that laid the groundwork for his career.

Q: Brian, four members of your 10-person team are working from the Palm Beach office that you opened in January with financial advisors having been deemed an essential service by the State of Florida. What steps are you taking to stay safe?

A: I get in the car at my house, I drive to the office. I park, I walk right in, wash my hands, get to the desk, stay away from people. I have lunch that I brought in. I leave at six or so and go home and do the same thing the next day.

We are in Palm Beach and I think there are something like 10 people on the entire island who have the disease. Its very odd. Its just very, very quiet; everything is closed, with the exception of restaurants, which are doing takeout. But its extraordinarily hectic in terms of work.

Q: How do you see this whole situation playing out?

A: I think the longer-term ramifications are unknown, and the longer it persists, obviously, the more poignant those ramifications become.

But given that youve got the smartest minds in the world trying to figure out a vaccine and [treatments] for this, and the amount of research dollars that are going towards it, youll probably have a widespread vaccine within 12 months. And I do think that once you have that, as hard as it is to imagine, we in many ways will probably go back to a more normalized way of living.

In 2008-2009 the world was ending, for a whole host of reasons. But with government intervention, recapitalizing the financial sector, and time, equity markets did extraordinarily well. Now that were in this, youve seen the Fed and the government in the U.S., but also the European Central Bank, the Bank of Japan, and also their governments on the fiscal side, address the Covid problem in a much quicker manner. Three quarters of what the Fed did in 08 and 09 already has been done within six weeks.

Q: What are you telling clients about the markets?

A: We have a great group of clients and it skews very high net worth. So even with major market declines, in almost every instance, they are not going to impact the quality of life of the clients, or their spending or their ability to continue to live the way theyve lived. So we can take a long-term focus.

Having said that, I would say that 90% of the calls Ive had over the past five or six weeks, have been, OK, whats the market going to do over the next few days? Whats the market going to do over the next three, four weeks?

So despite the fact that they have, in many instances, generational wealth, almost everyone is attuned to this just-in-time world that we live in. They want to know in real time whats the portfolio value, how much is that down, how much is that up, when is this going to stop.

Q: How do you respond?

A: My message to them is I have absolutely no idea what the markets will do over the next four weeks. No one really had a great call coming into this. When the markets were at their bottoms, a lot of very smart, celebrated people were saying that people should be still very cautious. Now the market is up 20-odd percent from there, and a lot of stocks are up more than that.

Theres no doubt that the cash flow earnings for almost every company out there, with the exception of an Amazon, Costco, maybe a Netflix and things like that, are going to be lower in 2020, and materially lower at least in the second quarter and probably the third quarter. And they are probably going to be lower in 2021. Im not necessarily in the camp of an immediate V-shaped recovery here; I think the best case is that were going to have more of a U shape.

Having said that, I think its also quite likely that we do have a therapeutic and a vaccine by early to mid-next year that is widely available in the U.S., Europe and all developed areas. My sense is that once the vaccine is out there, behavior will go back to relatively normal. And I think that means that looking out to 2022 and beyond, the earnings stream for most companies is probably not going to be that much different than where it was coming into this.

So if one takes a view, not of the next quarter, not of the next few quarters, maybe not even of the next 12 months, but of the next 24 months, the picture is much more optimistic than what the current market is pricing in. Recognize that short term can be very ugly, ensure that you have enough liquidity on the sidelines to get through these types of downturns, [but recognize that] any company that makes it through this is really going to be viewed on the sum of their 10-year cash flows and 10-year earnings, and the near term earnings hit is not that important.

Q: So you remain bullish on stocks for the long term.

A: I think stocks still are attractive on a long-term basis, although I think the next year could certainly be choppy. My sense is that equities came into this offering a better opportunity set than fixed income on a longer-term basis, and they continue to represent that now.

The bad news has been coming out on infections re-emerging in some places, which Im sure they probably will in the U.S. Whether that will mandate additional shutdowns I dont know, but even if things go well, youre going to have those types of flareups and such. That will cause downturns in the markets and cause risk assets to decline more than safety assets in the short term, but I think in the longer term thats still where one wants to be.

So we are spending a lot of time discussing that with clients. Thats not to say not to have reserves on the sideline, because it can always get worse. My view is that clients should always have money on the sidelines to get them through a very ugly market for between three and five years. Its just what you do with the assets outside of that reserve.

For many people with a lot of wealth, who spend very small portions of their net worth, I still [like] equities and now increasingly, distressed debt situations. Were very attracted by right now because of the dislocation there.

Q: Lets talk about distressed debt in a moment. First, which sectors do you see as good values right now for long-term stock investors?

A: Large U.S. financial institutions are too cheap right now. You have to recognize which businesses will come out of this with different cost structures in the same way that Wall Street came out of 2008-2009.

Coming out of the recession, the financial services industry went through a fundamental change in terms of regulation, compliance costs, the amount of capital that we had to build up, and the amount of equity issuance to get to that capital buffer level. We came out of it very, very different than how we entered it.

I dont think we come out [of this recession] that differently than we entered. But for an airline company, I dont think anyone is going to get on a plane ever again without that plane being extraordinarily clean. I think that industry exits with a much higher cost structure than they came into this crisis with, as does the cruise industry and all that.

Think about hotels, that are already cleaning every room overnight. I think people probably will be more inclined to go to a [high-end] brand hotel. I think that will give them a level of comfort that you may not have in lesser-known brands or, say, some of the AirBnB-type things. And thats going to have positive implications for those companies when we come out of this, I think.

And then, certainly, weve been very invested in technology and the move towards the cloud [via] public equities. Weve also allocated a tremendous amount of our client capital to growth equity in the private technology space through private equity funds that focus on technology in the U.S. and in China.

I dont really have any position in the most hard-hit things like airlines and the cruise industry. I dont see how that works out very well for them.

Q: To what extent do you think businesses will continue to rely on remote rather than in-person communications after the vaccine?

A: I am not of the belief that everyone is going remotely at all. There is a huge value to being together in the workforce. Remember after 9/11, everyone thought that Polycom was the best buy in the world and everything was going to be remote? After that, people got comfortable with what was going on at TSA, and everyone started traveling again. The travel industry had an extraordinary boom for a whole slew of years.

I think that if you have an effective vaccine, the world will resume and people will want to go see clients face to face. Any business that thinks they can [interact] 100% remotely, I think, will not succeed against those companies that see their clients face to face, whatever industry theyre in.

And people will want to travel. You are going to have a continued expansion of the middle class in China and different places and they are going to want to travel. So there will be a need for airplanes.

Q: What are your thoughts about distressed credit?

A: There will be really good opportunities for those who can effectively navigate that landscape. We dont do that directly, but we have managers that weve been with for a long time.

Ive been around for years and years, having started in high yield. And typically every seven years you see a blowup in high yield. Were in one right now, and the spread widening has been commensurate with what you saw in 2008 2009. Ive outlined the view that we get back to a more normalized economy within, say, a year and a half. I think credit will also normalize over that same time period. Youre seeing a lot of large, well-known funds raising money to take advantage of it.

I dont think high quality government debt for a long-term hold is particularly attractive right now. I think it will underperform distressed credit and equities over a three, five and 10-year holding period.

Q: Brian, I want to touch on your career if we can. Can you point to a couple of milestone decisions that helped you get where you are today?

A: First of all, coming to Morgan Stanley was a milestone. Morgan Stanley allowed me to have varied experiences.

Q: Right, you started as an analyst at the investment bank, then traded bonds, then moved to wealth management.

A: And two, we made the decision early on that I was going to make the investment decisions. I think you have a lot of people in this business who focus on raising assets, and relegate the role of the investment side to more junior people or to internal models within the firm.

I always wanted to be directly in control of [investments], and so to make a determination that I was going to run a large portfolio of U.S. equities, which I do today, and then select the managers that we invest with on our best-of-breed, open-architecture platform.

I never have focused on raising assets; how to generate new clients doesnt even cross my mind. A hundred percent of our clients come from reverse inquiry. We probably generate three or four new clients a year from referrals, and thats that. Thats a big decision I made, and I think its really helped us in terms of performance.

Q: Was the idea that if you took care of performance, the business development would take care of itself?

A: Yeah. If you think about it, if you can generate two very good clients a year for 20 years, thats 40 great clients. I would say we probably have 50 great clients now. We focus on doing a great job, and then if those assets perform well, our entire business grows.

Q: Youve navigated through a number of market and economic crises. What lessons are you applying now in order to deal with the pressure?

A: Im not going to lie, its been very, very stressful. The vast majority of our clients are entrusting us with their financial wellbeing. Outside of their health and their family, its probably the most important consideration they have in their life.

It was very stressful back in 1994 when I was trading bonds. It was very stressful in 1999 and 2000. And it was very stressful in 2008 and 2009. Ive been doing this for 30 years; Im 52. I think as you get older youre more focused on your own wellbeing, because you realize its more precious. I would say that I definitely sleep more than I did 20 years ago. Im really trying to get seven-odd hours a night, and Im trying to exercise every day. And Im also just trying to remind myself that this too will pass.

Q: Thanks, Brian.

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Brian Pfeifler: How to Invest in a Changed World - Barron's