Let’s be honest, these are unsettling and scary times. People around the world are literally afraid to breathe for fear of contracting COVID-19. And the stock market has been in a period of extreme volatility, with stomach-churning ups and downs.
In the face of these alarming challenges, what should investors be doing? What role can advisors play in the midst of such pervasive uncertainty and fear?
No one knows how this market turmoil will play out or when we’ll see a resolution to the COVID-19 pandemic. But this is a time when you can truly demonstrate your value to clients by coming to their aid and helping them manage their fears. With calm guidance, you can prevent clients’ investment plans from being derailed.
Perhaps not surprisingly, some advisors are not comfortable having these conversations. A few years ago, I asked a roomful of advisors what they did when markets churned. One advisor said, “I hide under my desk.” The other advisors in the room laughed. While it was obviously a joke, I noticed a lot of nodding heads as well. It highlighted for me that it’s not always easy for advisors to get in front of these issues in difficult times and assuage clients’ fears.
Six positive things advisors can do right now for clients
1. Talk to clients
Just reaching out to clients is a great start. The one thing to avoid is silence. My email inbox is full of messages intended to reassure me about what’s going on in the world right now. Several of them are from my trusted advisor. I would actually wonder where she was if I hadn’t heard from her.
Also, be sure not to focus narrowly on clients’ portfolios. While their portfolios, of course, may be a big part of their worry, their fears may be much broader. Enhance and broaden your client relationships and demonstrate your value by just listening and supporting them.
2. Acknowledge their fear
Recognize that people are scared right now – for their health and their financial well-being. As their advisor, you can take an objective, longer-term perspective. Talk them out of knee-jerk decisions such as panicked selling. Remind them that in the larger scheme of things, volatility is “normal,” it resolves itself in time and a long-term plan accounts for market corrections.
3. Be prepared for their anger
With fear and anxiety often comes anger. It’s a normal reaction to the grief that clients may be experiencing right now — grief about their portfolio losses, grief at seeing their retirement dreams evaporate, or grief that their health and the well-being of their loved ones is at risk. So don’t be surprised if a few clients are upset when you reach out. Try to calm them down and reassure them that you’re there to help them cope during these challenging times.
4. Suggest they tune out the market news and stick to their plan
The daily news updates can be alarming in times of fear and turmoil. The key is to help your clients not overreact to the bad news barrage. With your help, they presumably have a strategic, long-term investment plan that’s been designed to work during all types of market conditions. Remind them to trust it.
For clients who are sufficiently far away from retirement, encourage them to stick to their plan. They should continue making regular contributions and avoid rash decisions they may later regret. If there’s no reason for their goals to change, then it doesn’t make sense for them to make drastic changes to their portfolio based on the latest bad news story. For pre-retiree or retired clients, you may need to help them with cash management solutions.
Either way, helping clients through this difficult and emotional time is an opportunity for you to shine.
5. Remind them that market timing doesn’t work
It’s virtually impossible for anyone to try to time the market — to know when to get out and when to get back in. Even professionals with long histories and extensive market experience have no idea what the market will do, or when it will recover. But it will recover – it always does. This is important for clients to understand.
Encourage your clients not to even try to time the market. Instead, encourage them to leave money in their retirement accounts and continue to make regular contributions during market volatility. Ongoing dollar-cost averaging throughout the downturn can help offset other aspects of the market turmoil. In other words, recommend they continue with the plan you’ve helped them create.
6. See the opportunity
Finally, although all clients may not appreciate this sentiment, market volatility is a buying opportunity. It’s the silver lining, so to speak, in a cloud of fear, bad news and huge market swings. With stocks of certain companies at record lows, you may be able to help some clients buy into sectors or markets they’ve always wanted to own or believe will perform well over time. They do have to be prepared, though, for more volatility and their purchases may further decline in value before they go back up. It’s essential you’re clear on their objectives, and especially their tolerance for volatility and risk.
There is a general feeling that volatility will persist as the current situation continues to unfold. But history has shown repeatedly that short-term reactions can cause long-term pain to portfolio performance. Encouraging clients to stay calm and stay invested throughout the highs and lows is a proven way to help them reach their investment goals.