The old saying that “bad news sells” may be good for media outlets, but many financial advisors are finding that headlines about economic turmoil are taking a toll on the confidence of their clients. And although you can’t fix the turbulence, you can find ways to help your clients deal with the barrage of information.
“The media is doing its best to cover a broad range of increasingly complex issues amid a very volatile market,” says Bill Brown, senior vice president and managing director at BMO Nesbitt Burns Inc. in Toronto. “The media itself is clearly not the cause of the complexity, but there is a certain aspect of the media that adds confusion by attempting to predict the future.”
News reports and commentary – in newspapers and on television, radio and the web – may be adding to the confusion by offering varying perspectives and opinions, adds Brown, who was an advisor for 15 years prior to holding his current position. “Financial advisors are there to help clients deal with the sheer volume of information, which can at times be overwhelming.”
The events of 2008, when the Toronto Stock Exchange lost 35% of its value, or $700 billion, taught advisors and their clients a valuable lesson. With news of financial devastation saturating the media every day, it became clear to advisors that some clients didn’t know themselves as well as they thought they did.
“After 2008, we became much more aware of which clients can tolerate [large declines] and which cannot,” says Ed Rempel, a certified financial planner with Armstrong & Quaile Associates Inc. in Brampton, Ont. “There are clients who say they can tolerate some volatility and they really can’t. And there are some clients who might then have to refocus their attention on their financial plan.”
Further, the past decade has not brought the kind of returns clients have been expecting. Even those with a long-term perspective have found it difficult to maintain their focus because of the constant stream of information, says Nick Acocella, a CFP with Acocella Wealth Advisory in Kleinburg, Ont.
Acocella says he tells long-term investors to keep the big picture in mind. He tells these clients: “While the past 10 years have been challenging, we’ve seen this before and we’ve come out of it before.”
During times of economic volatility, you need to stay in constant communication with your clients, ensuring that they have the most accurate information possible and telling them how that information fits in with their goals, their risk tolerances and their portfolios.
Some clients require more reassurance than others, says Acocella: “They need to know that someone’s minding the store. And just the fact that you’re in contact with them on a regular basis goes a long way toward making them feel comfortable.”
Rempel agrees, adding that advisors need to urge clients to refocus on their plans and their long-term goals: “We need to remind them that ‘This is what your plan is. This is how long it will be until you retire and you should keep putting money in.’ We need to get their heads back into the proper space.”
Regular client contact is essential at the best of times. Some advisors typically hold up to four face-to-face meetings a year with each client, supplemented by phone calls and emailed economic updates – sometimes from head office and sometimes written by the advisor.
But when markets get wonky, that contact should be bolstered. Scott Christie, a financial planner in Halifax with RBC Financial Planning, a division of Royal Bank of Canada, ensures that all his clients receive quarterly or semi-annual reviews with periodic phone calls. But when times are volatile – as was the case last summer and autumn – he added biweekly seminars at his branch and emailed articles to his clients every week.
Christie and his team saw a rise in the number of clients coming into the branch just wanting to talk. He put some clients on the mailing list to receive financial reports from RBC. Christie says he has now become accustomed to pulling out charts when explaining to clients that the current rough patch is not unique.
“It helps people get back to a sense of calm,” Christie says. “They remember that markets come back in the long term.”
He suggests all his clients create a reserve of five years’ worth of “safe” money – just in case something goes wrong and they need to access cash quickly. Even if they don’t use it, having the money set aside can be reassuring.
Clients also should take comfort in knowing that regular, monthly contributions can be of some benefit during volatile times, says Blair Guilfoyle, a CFP with Guilfoyle Financial Planning Inc. in Toronto.
“If the markets dip, the client can use dollar-cost averaging to buy more units in a fund or another investment,” says Guilfoyle. “This really helps take the emotion out of it.”
Some clients want to go the other way completely – and take out all their money when markets are down. Says Christie: “It’s the absolute worst thing to do. People are often their own worst enemy.”
Although there are some knowledgeable investors out there, many clients still don’t understand the workings of the markets, Acocella says. Education, he adds, will go a long way toward making them feel more comfortable.
“Fear comes into play for the most sophisticated investors,” Acocella says. “So, for someone who doesn’t have that understanding, it’s even more pronounced.”
© 2012 Investment Executive. All rights reserved.