By Mark Stevens
Last month a mix of muted company earnings and economic malaise sent the Dow spiraling nearly 400 points in a single day. While the phones of many advisors nationwide were ringing off the hook, I did not hear a peep from my clients.
Whether they were aware of the forces driving the market that day or not, they knew that volatility would rear its ugly head at some point. And, more importantly, they knew how and why they’d make it through.
It comes down to managed expectations. While it’s true clients hire advisors for their asset allocation and investment expertise, they stay with them, particularly on days like Sept. 9, when you take charge of their fears. It’s critical that advisors remember this is an essential part of the job, especially in a year with uncertain interest rates, a wild presidential election and a myriad of other economic situations that can make investors jumpy.
Address Fear Head-On
While it’s human nature to shy away from uncomfortable topics, as a financial advisor it’s your job to be honest with your clients about how the investing climate could impact their portfolio. It’s critical that you educate them about market volatility.
Tell your clients clearly what could happen in the future, but follow it up with how you’re going to get them through it. By giving your clients a path to walk in your long-term investing plan, you’re ensuring both their finances and your relationship.
Set the Expectation
Building proper expectations begins at your very first meeting. You must discuss the potential flares the market can face and use this initial conversation to underscore the importance of focusing on the long game. If a client relationship begins with more short-term objectives, it will be difficult to rein that individual back in when times get tough.
This takes planning. According to a Financial Planning Association study, only a third of advisors have a set agenda even occasionally for their client communication. That’s a low number and it needs to be much higher, especially in the first meeting. Make the expectation of volatility a priority during the kickoff meeting and speak with them about how to avoid the white noise they’ll eventually be faced with.
Unfortunately, as much as clients may be on board at the onset, their memory may quickly fade. Just think back to earlier this year. The first few months were particularly challenging, but I’m sure most of your clients aren’t bringing that up anymore. If they don’t offhandedly remember the emotion of January and February, it’s unlikely that they’ll remember the expectations you set in a meeting that was months or even years ago.
What does this mean? You need to keep bringing up the topic of expectations. Address potential market concerns in every communication, airing to the side of over-communicating if there’s ever uncertainty. You don’t want to be seen as a fear monger, of course, but the history books don’t lie; bear markets occur on average every 3.5 years, and we all know history has a tendency to repeat itself.
When you prioritize client emotions, speaking not just about investment performance and asset allocation but also about expectations and keeping your cool during volatility, you’re serving your clients in a more holistic way.
Mark Stevens is a partner and managing director at Snowden Lane Partners.