August’s moment of truth

First and foremost, did your clients get an email or a call from you? If not, as they talked to friends and co-workers and heard that other advisors had sent emails and made phone calls to discuss what was going on, some of your clients might have wondered why you were missing in action. Even many clients with whom you had rational conversations in your most recent review about the inevitability of a market correction felt apprehensive as they heard television newscasters talk about another brutal day in the markets or faced bold headlines about turmoil in global markets.

If you weren’t among the advisors who contacted their clients in mid-August, you have an opportunity to put a plan in place for the next time you’re faced with such a moment of truth.

– Set the stage

Many advisors talk to their clients about the likelihood of a market correction as part of their regular reviews or in email newsletters. Some advisors show charts depicting the number of declines of 10% or more along with the length of time to recover afterward. Other advisors use graphs indicating the cost of being out of the market after times of market turmoil in the past, such as what we saw in 2009.

These conversations and newsletters are useful starting points to reference, and sometimes they’ll stick with clients. The fundamental problem with these conversations, however, is that they operate on a rational level at a time when clients are responding emotionally to the events around them. As a result, those regular conversations, while helpful to set the stage for dialogue, don’t replace contacting clients when they’re in the heat of a market drop. By all means, continue having these conversations with clients to reinforce the fact that markets will continue to gyrate, but don’t think that these talks are a substitute for clients hearing from you during a big drop in the markets.

– Decide in advance when to contact clients

There are a number of reasons why advisors don’t call their clients during periods of market turbulence. Perhaps you don’t want to alarm clients who are not worried, or you aren’t sure what to say. Maybe you’re waiting for more information and for events to become clearer, or you reason that clients know you are always available to talk should they have questions.

On the last point, understand that while some clients who are worried will call, for every client who calls there are 10 who won’t pick up the phone but are reading ominous headlines and feeling apprehensive. And remember, when your clients talk to friends who have heard from their advisors during tough market periods, your clients’ confidence in their decision to work with you will be shaken in the absence of similar communication.

With regard to waiting for events to become clearer, the time that clients need to hear from you is when things are uncertain. In order not to cause undue alarm, you can frame your email or call very simply along these lines:

“You’ve likely read about some of the market volatility over the past few weeks. We’ve been monitoring this closely and will continue to be on top of events as we go forward. In the meantime, I wanted to check in for two reasons. First, to confirm that market events to this point have not had an impact on your long-term plan. And, second, to answer any questions that you might have.”

I recently talked to Stephanie, a veteran advisor who sent an email to clients on Friday, Aug. 21, a week after markets started dropping, and she began calling her clients that same day. Stephanie had this to say:

“I’ve learned that when you see big drops in markets, clients become worried, no matter how many times they’ve seen it before. And that’s especially true when you get big one-day drops that the media picks up on. In terms of client anxiety, two or three big one-day drops are much worse than a longer period of smaller drops.

“I have three triggers,” Stephanie continued, “to decide when to send clients an email and to begin calling – any two of which will get my team and me to drop everything else that’s not urgent. The first trigger is when markets are down by 10% off their peak. The second is when I have received three calls from clients who are worried about what’s going on, especially if these are clients I would not normally expect to hear from. And, finally, if there are big headlines about market drops in the local paper, that’s a trigger for me to send something out to clients and to begin calling.

“It’s a bit like having stop-loss orders or a policy of automatic rebalancing,” Stephanie added. “By setting triggers beforehand and saying, ‘If this happens, I will contact clients,’ it takes the uncertainty and emotion out of the decision for me.”

– Craft the right message

Regarding what to say, advisors tend to overthink their message. During times of market turbulence, most clients want to know just two things: their advisor is on top of what’s going on, and market events have not put their financial future in jeopardy.

After reassuring clients on these two issues, you can say something like: “And how are you feeling, given what’s going on in global markets?” Then, sit back and listen. Hearing out anxious clients and actively listening to what they’re saying is critically important. Validate their feelings with phrases such as “It’s understandable that you feel anxious” or “You’re not alone. Many clients share your concerns.” Until clients feel heard, they won’t be open to listening to what you have to say.

Some clients also want reassurance that their portfolio is being managed to mitigate the damage from market events. For those clients, talk about any shifts that have taken place in their portfolio. This is especially important for clients who are invested in portfolios run by third-party portfolio managers. Shifts by those managers won’t be evident to these clients unless you make those changes clear.

One final suggestion: stay away from anything that sounds like a sales pitch. These calls are not the time to suggest transferring assets into the market to average down or to take advantage of “buying opportunities.” If your goal is to ensure that clients feel that you’re on the job watching out for their interests, anything that makes your calls feel like they are motivated by your interests rather than the client’s undermines that message.

– Borrow credibility

During periods of volatility, you’re dealing with clients’ emotions rather than their rational responses to events. That’s why supplementing your advice with perspectives from credible, trusted sources is helpful.

At the heart of the global financial crisis in 2008, Warren Buffett’s article entitled “Buy American, I Am” helped to play that role. And two columns that proved helpful to advisors in this August’s bout of market excitement were Ron Lieber’s New York Times piece entitled “Advice after a market drop: Take some deep breaths and don’t do a thing,” and a column from Wall Street Journal columnist Jason Zweig entitled “Five things investors shouldn’t do now.”

– Identify clients for special attention

Every advisor has some clients who – because of their age, past experience or simply their nature – will be more anxious than others. That’s why you should put together a list of your top five or top 10 nervous clients, and do this before market events cause their anxiety to spike. These are the clients you contact first when markets decline, perhaps using a lower threshold to prompt your contact with them than you use for your client base as a whole, and possibly invite these anxious clients to meet in person.

Having to hold hands perpetually with clients can be draining. But if you’re not prepared to do this, then consider whether you are doing yourself or those clients a favour by continuing to work together. If you aren’t able to provide anxious clients with the emotional support they require, then both you and these clients may be better off if these clients work with someone who is willing to provide that support. But if you aren’t prepared to cut the cord with these clients, then accept that being proactive in periods of market turbulence is the price you pay for dealing with such clients.

– Make contact your top priority

Once market events dictate that you contact clients, you need to make this contact your top priority and adopt an “all hands on deck” mindset. Even if you have to spend some evenings and weekends reaching clients, that’s an investment worth making.

In fact, for some clients, a Sunday afternoon call that starts off with “Given market events in the past couple of weeks, I came into the office today to check in with some of my most valued clients” will be an extra demonstration of commitment.

Dan Richards is CEO of Clientinsights (www.clientinsights.ca) in Toronto. For more of Dan’s columns and informative videos, visit www.investmentexecutive.com.

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