When markets are volatile, many clients climb the proverbial wall of worry. They become anxious about falling short of their long-term financial goals. Often they want to abandon the markets, sell at a loss and sit on the sidelines, harming further their long-term plans.
“Some clients are more nervous than others,” says Heather Holjevac, a certified financial planner with TriDelta Financial Partners Inc. in Oakville, Ont. “If you set expectations ahead of time, this should not happen.”
Yet clients often overestimate their level of risk tolerance and need to be given assurance that their investments are on track. Here are five ways to keep your clients on track — and invested — during times of market volatility:
1. Communicate proactively
Make the first move in contacting your clients and providing them with reassurance that they are still on track to achieve their goals, says Kevin Sullivan, vice president, portfolio manager and advisor with Toronto-based MacDougall, MacDougall & MacTier Inc.
“Step up the normal level of communication,” Sullivan says. “Have an extra conversation.”
Holjevac agrees. “Don’t wait for clients to call,” she says, “or they could be calling someone else.”
As much as possible, customize your communication for each client. Talk about the client’s individual goals rather than taking a “cookie cutter” approach.
2. Be upfront
“Tell them exactly what’s happening in the markets,” Sullivan says. “Zero in on a couple of important points, such as why the markets are volatile and what it means to their investments.”
Your objective is to filter out the “noise,” Sullivan says, and get your clients to refocus on the long-term rather than getting caught up in the news of the day.
Holjevac suggests you explain the big picture of how the market behaves relative to their investments. “Be honest,” she says.
3. Remind clients about risk and volatility
“Hammer home the difference,” Sullivan says, “between risk, which effectively involves a permanent loss of capital, and volatility, which relates to the normal ups and down of the market – even though you should have had this discussion before.”
Your clients should have an understanding of the history of market behavior and understand that higher volatility is associated with higher long-term returns.
4. Make them aware that you’re on the ball
“Tell your clients specifically what you’re doing,” Sullivan says, “and what you are not.” Remind clients of your investment philosophy and beliefs, he adds, which should give them comfort that you are looking out for their best interests.
5. Review portfolios
In some cases, Sullivan says, it may be necessary to review the portfolios of certain clients to make them comfortable that they are on track with their goals despite market conditions.