Skip navigation
stock market drop Andrew Burton/Getty Images News/Getty Images

Steering Clients Through Market Volatility

Technological innovation is a necessity today, but it’s no substitute for human relationships, expertise and guidance.

One of the most powerful advantages financial advisors has over robo advisory platforms is also the most obvious—being human. “The human touch” is more than just an expression in today’s wealth management industry, especially during periods of severe market volatility, like what we witnessed in early February.

On Monday, February 5, when the U.S. equity markets were experiencing their steepest declines in years, the websites for two of the largest robo advisors, Betterment and Wealthfront, crashed. Fidelity, Vanguard and Charles Schwab also experienced website troubles that day. 

Technological innovation is a necessity today, but it’s no substitute for human relationships, expertise and guidance, as the above developments remind us. For investors, working with an experienced and knowledgeable advisor who they trust means they always have someone to talk to—and when investors panic, advisors who know them well can calm them down and remind them that short-term market fluctuations, in most cases, don’t warrant changes to long-term investment strategies.

With the potential for further interest-rate changes and market volatility on the horizon, advisors can proactively take steps now to flex their service muscles for clients ahead of any additional turbulence.

Adopting Behavioral Finance Techniques

Stephen Wendel, head of Behavioral Science at Morningstar, said in an interview on on February 5: “There’s lots of research on how frequently checking your portfolio, especially during market downturns, can warp one’s behavior and get you into trouble. But we’re all human. I’ve been looking at my portfolio as well throughout the day, just out of curiosity. Thankfully, there are a variety of things we can do to help us calm down and get back to our rational selves.”

Advisors can coach their clients to adopt certain behaviors that can prevent them from making irrational decisions during market fluctuations. As Wendel notes, checking portfolios too frequently can get investors worked up and skew their mindset. So advisors can take the lead and actively counsel their clients to check their portfolios, for example, once or twice a day at most regardless of market conditions. Advisors can also recommend that investors not look at their portfolios alone during downturns, but instead to do so when in the room or on the phone with their spouse or advisor. 

In addition, Wendel notes that investors need to be careful not to let their minds play tricks on them. “Fundamentally, volatility, downward or upward, is just data. As for the drop that just happened, that’s past. That’s gone. There’s nothing we can do about what just happened. It’s really as we think forward to what will happen that our minds take that data and apply a story.”

Advisors can help investors by reminding them not to get carried away with market speculation and data, and to think about next steps rationally. While markets are calmer, advisors can sit down with or phone clients to demonstrate how selling certain holdings during market volatility can harm their overall wealth down the line—and remind clients of this conversation whenever another market fluctuation occurs.

Reminding Clients That You’re There for Them

During downturns, advisors can send clients an e-blast which can put them at ease in real time. Such an e-blast can include a brief explanation of the day’s market developments, along with a reminder about behavioral finance techniques that can prevent irrational decision-making.

Essentially, advisors need to proactively tell their clients, “Hey, I know what’s going on, I’ve got your back, these are some things to think about, and my phone lines are open if you want to talk or ask questions.” Like in any business, financial advisors have to get ahead of potential crises to prevent customers from panicking.

Now Is the Time

Market volatility is never pleasant, but it provides advisors with a prime opportunity to demonstrate their value for clients. Now that the markets have returned to relative normalcy, advisors can begin laying the groundwork to help clients adopt behaviors and techniques that can train them to remain cool and rational during market fluctuations. 

David Lyon is CEO and Founder of Oranj, a Chicago-based provider of digital wealth management solutions for financial advisors.

TAGS: Technology
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.