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Setting Client Expectations in a Volatile Investment Environment

As volatility becomes the norm and double-digit gains become an anomaly, it’s time to boost your contacts with your clients to keep them contented.

By John P. Maher

Perhaps the most critical challenge facing every advisory firm across the country has nothing to do with regulatory concerns, increased margin pressure or the emergence of new digital technologies that, at least ostensibly, pose an existential threat to our businesses. Instead, it’s something far more fundamental: keeping clients happy.

A big part of doing this has always included setting the proper expectations. Most clients are reasonable, knowing that investing for the future can be a roller coaster—and they’re willing to endure the inevitable ups and downs if they are primed for them. What they don’t like is to be blindsided.

Recently, that hasn’t been much of a concern. The last 5 years or so, in fact, have been somewhat of a Goldilocks period for advisors from a relationship management standpoint. We’ve seen spectacular returns and almost no volatility relative to historical norms. Meanwhile, the horrors of the financial crisis had faded, assuaging fears of many clients who were understandably gun-shy about jumping back into the markets after experiencing profound, once-in-a-lifetime losses only a few years earlier.

During this period, nearly everyone has done well, and to the extent advisors have needed to set expectations with clients it was to say that the market would likely continue to go up. That is beginning to change.

The Sizzle Came Before the Steak?

Despite a relatively healthy economy, a robust jobs market and mushrooming corporate earnings, equities, outside of a few high fliers in the tech sector, are roughly even for the year and, at times, been plagued by bouts of extreme volatility. The prospect of rising interest rates, geopolitical turmoil in parts of Europe and increased tensions with trading partners, including many longtime allies, are mostly to blame.

Complicating matters is that the outlook for the duration of 2018 is more of the same. If we see gains, they’ll be modest, and fits of volatility will continue. This view is based, in part, on the belief that perhaps the “sizzle came before the steak.” Indeed, the consensus among many analysts is that the impact of the recent tax reforms were priced in long ago, meaning further job gains, corporate earnings growth or other positive economic data won’t move the markets much because valuations are already so lofty. 

Add in the factor that the bond market will likely be tepid in the short term, and all of the sudden the year-over-year comparisons are about to get really difficult for advisors. You’ve no doubt heard from panicked clients who have become accustomed to supercharged gains asking, “What’s going on?”

Set Expectations with Clients—Over and Over and Over Again

What’s going on is that we’re heading into an investing environment in which volatility is the norm and double-digit gains are an anomaly. In the past, this is the precise time that unsettled clients would hunt promotional rate CDs and, thereby, haunt advisors’ businesses. Now, it’s robo advisors promising the same level of service for a fraction of the price. And while we all know that’s not true—a digital tool can hardly offer the same holistic wealth management experience as a human advisor—it’s a threat we all need to take seriously.

This begins with level-setting with clients. In the current environment, it’s hard to overstate the importance of establishing more regular touchpoints, which will allow you to inure them to just how much the investment landscape has shifted over the last six months. This goes beyond having routine in-person, quarterly meetings that are the norm across the industry.

If before you called clients once every couple months to touch base, now is the time to reach out every few weeks. If you meet with clients once a quarter, start requesting more frequent in-person meetings. If you’ve never sent out a monthly newsletter that included in-depth market commentary, think about doing so. If you’re not active on social media, ramp up your digital efforts.

The message each time should be the same each time: The most recent past has been great, but it’s just that—the past. We’re heading into a decidedly new era.

Is it somewhat surreal that even as the ongoing bull market isn’t officially over, advisors are already fielding questions that, in effect, compel them to justify their existence? Of course. But it’s hard not to have recency bias when the stakes are your retirement.

At the end of the day, advisors need to remember that an unpleasantly surprised client is an unnerved client, which means there are in danger of being a former client. A client, meanwhile, who’s girded for change may not be happy, but they could be contented—and a contented client is a long-term client.


John P. Maher, CFA, is the Chief Investment Officer for CCR Wealth Management, a Boston-area based firm. 

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