When times are good and the markets are flying high, investors tend to forget that volatility is a normal part of the investment cycle. Though everyone knows the age-old adage “buy low, sell high,” most of you have experienced calls during market dips from panicked clients with requests to sell or, at least, “Do something! “
The key challenges for MFDs are overcoming clients’ emotions and keeping them focused. A whitepaper by LPL Financial lists five steps to prepare clients for market volatility and help them weather the storm.
Educate early
Start educating your clients at the very beginning of your relationship with them and continue to emphasize important tenets in every meeting and interaction. Even if you think clients understand how investing and market cycles function, they need to know how you view historical performance, current market cycles, and the appropriate way to respond. At the root of it, clients simply want their hard earned money protected and they need to know how you plan to do that.
To ensure clients are fully educated, make sure to cover:
- Investment history
- Your investment process
- How you prepare for volatility
- General investing practices
Communicate early and often
Once you’ve laid the foundation for clients through education both at the beginning of the relationship and in ongoing meetings reinforce your message through ongoing communications.
Your communications don’t have to be long or involved, even one to two paragraphs that explain your position on current and market events is enough to reassure clients that you’re on top of things and care about them.
If you're not a confident writer, try these things:
- Share your thoughts with colleagues, have them write it and do a final review
- Find an article online that echoes your beliefs and share it with a sentence or two describing what it is and how it relates to your personal philosophy
- Videos can be even more engaging. Share your thoughts and updates in a 1–2 minute video
Be proactive
When market volatility hits, don’t wait for clients to call you, reach out immediately and let them know you’re aware of what’s happening and prepared for any contingency.
If you’re doing regular emails or blogs, push out a special edition as soon as possible with your thoughts on the situation.
If the volatility continues, increase the frequency of your communications. For example, if the market is falling drastically every day, a daily email may be warranted until fluctuations slow.
Here are ways you can stay proactive:
- Provide regular updates on social media
- Make phone calls
- Consider client conference calls or meetings
- Develop a monthly communication plan and list down communication activities to be done on each day in a chart/diary
Counsel, counsel, counsel
When times get tough, you’ll need to put on your counsellor hat and coach clients through the uncertainty.
In many cases, clients just need reassurance that their strategy is right for them and you have the expertise necessary to see them through. Go through these steps:
1. Tell them you understand and are prepared
2. Remind them of market cycles
3. Give your thoughts on this market cycle and event
4. Review their strategy and the importance of sticking to it
5. Go through various options and scenarios and the potential results
Make adjustment as a last resort
If clients need you to do something, a good first step is to readdress risk tolerance.
Go through a risk tolerance questionnaire with clients again and explain the impact of switching to a model with a different risk tolerance. Later, if you decide a change to their strategy is necessary and appropriate for a client, some initial options to consider include:
- Having a more conservative allocation
- Moving assets to liquid funds temporarily
