When stock markets are volatile — as they have been recently — many clients worry that they might not achieve their long-term financial goals.
Such fears can sometimes lead clients to abandon the markets by selling at a loss and sitting on the sidelines, bringing their long-term plans even further off-track.
“It is essential that advisors take a proactive approach to communicating with their clients during periods of volatility,” says George Hartman, CEO of Toronto-based Market Logics Inc. “Clients are more comfortable and happy when their advisors communicate with them.”
Ideally, you should be talking to your clients about volatility and risk from Day 1 — and not after the fact, says Kevin Sullivan, vice president, portfolio manager and advisor in Toronto with Montreal-based MacDougall MacDougall & MacTier Inc.
“The tone should be set very early on and communication must be ongoing to nullify fears and apprehension,” Sullivan says. “The key is to deal with clients’ psychological approach to the market [to help them understand] the reality of market behaviour. In addition, they should have a good appreciation of the history of market behaviour and understand that higher volatility is associated with higher long-term returns.
“Good advisors know their clients and understand their temperaments,” he adds. “They should develop clientele that they can ‘click’ with.”
If you don’t contact your clients, they could stray to another advi-sor, says Patricia Lovett-Reid, senior vice president with TD Waterhouse Canada Inc. in Toronto. “If you are not talking to your clients, then someone else could be reaching out to them.”
Get your clients to look at the big picture, she says. Discuss previous market crises and show how the markets have rebounded from each of these crises. Explaining various pressures on the market as well as positive developments will give clients a better understanding of the impact of volatility.
Point out that the markets have rebounded significantly from recent downturns, such as the 1987 crash, the 1997 Asian crisis, the 1998 Russian ruble crisis, the bursting of the 2000 dot-com bubble and the 2007-08 global credit crunch.
“The best course of action during periods of volatility is to do nothing,” Lovett-Reid says. “Trying to time the markets involves getting it right twice — getting in and getting out of the market.”
And staying on the sidelines can be catastrophic for portfolio performance. Remaining uninvested or in cash means losing out on potential market gains.
@page_break@“Clients should stay motivated,” Lovett-Reid says, “and keep their sights on their long-term goals.”
It is also important for your clients to know your investment philosophy, Sullivan says, which can help assure them that you are looking out for their best interests.
When markets turn rocky, most advisors fall into three broad categories, Hartman says: those who go “missing in action” because they don’t know what to do; those who communicate, but only when they have to; and those who are proactive and say, “We are in this together. I can’t change what happened. Let’s deal with it together.”
When communicating with clients about volatility, Lovett-Reid says, you cannot use a “blanket approach” as one size does not fit all.
It might be necessary to segment your client base when developing a communication strategy, agrees Hartman, as some clients have higher “servicing needs.”
It is necessary to phone some clients immediately, Sullivan says, especially those who find volatility traumatic.
When implementing your communication strategy, consider the tools you can use to address the needs of clients of different levels of sophistication. Hartman suggests various methods, including direct phone contact, emails, letters, town-hall meetings and providing clients with research reports on the markets.
There is no doubt that market volatility breeds uncertainty. That’s why it’s important that you maintain an ongoing communication strategy to keep your clients assured that you are looking out for them. Here are a few simple steps that you can follow:
> Manage Your Clients’ Expectations. Ensure that your clients understand that volatility is part of the market’s natural cycle. This will help keep them on a disciplined investment path.
> Communicate Regularly. Reach out to all of your clients on a regular basis, not only during periods of volatility.
> Customize Your Communications. Make sure each communication suits the individual client. Depending on their level of investment knowledge, some need more attention than others. IE
Reach out to clients when markets turn rocky
Some clients get nervous during periods of turbulence. Keep them focused on the long term
- By: Dwarka Lakhan
- May 31, 2010 January 31, 2019
- 13:58