When markets turn south, it can seem as if some of your more anxious clients have added you to their speed dial.
During a downturn, says Mary Rose McGuire, a financial advisor with Richardson GMP Ltd. in Calgary, “every advisor knows who’s going to call first, second and third.”
Knowing how to guide those clients through a volatile financial environment can help turn them into more confident investors, which will make your job easier.
Here are three techniques you can use to assure clients:
> Show them the real numbers
Clients who do not understand the intricacies of financial markets can jump to conclusions when the market takes a dive. For example, some may assume that if a major index loses 30%, their entire portfolio has decreased by that value.
To help restore confidence, go through your client’s asset allocation and show them how their portfolio would react to a drop in the market to certain levels.
You can also do a comparison showing how much money the client invested with you initially and how much the portfolio is worth now. McGuire makes this comparison at every annual review and increases its use during a downturn.
“It’s quite reassuring to them to step back,” she says, “and see it in the bigger picture.”
> Use your tools
It is inevitable that when stocks are dropping in value, clients will not want to invest. Use the opportunity to show them how investing during a difficult market can work to their benefit.
Show your clients the cycle of market emotions, which is available through many product providers or can be accessed online. This visual aid demonstrates why buying stocks when markets are low can be a good idea.
Retail terminology can also help, McGuire says. Explain to your client that buying a stock when its price is low is like buying something “on sale.”
The relative strength index (RSI) is another useful tool for educating clients about market fluctuations, McGuire says. It can help you identify stocks that are being oversold and therefore present a good buying opportunity. The RSI shows your client that, although the market is down, you are always looking for ways to improve his or her portfolio.
> Maintain two-way communication
When times are tough, increase communication with your clients, whether by phone or email. Use your relationship with your clients to provide a personal and experienced perspective on the financial reports. This contact will provide reassurance.
“There’s a lot of news out there,” McGuire says. “But there is sometimes not a lot of interpretation of that news.”
Communication includes listening to your clients. Let your clients explain their fears and any steps they feel should be taken with their portfolio. Your experience will dictate the best way to move forward.
Still, McGuire warns, don’t expect 100% of your clients to make it through a market correction unscathed; some will still panic. “It’s not to get down on our ability or inability to persuade them otherwise,” McGuire says. “It is just human nature.”