The 4-Step Plan for Advisors When Markets Turn Volatile

Nervousness around COVID-19 and its implications for the global economy, a price war over oil between Saudi Arabia and Russia and an “emergency” half-point rate cut by the Federal Reserve all combined to form the perfect storm for investors in early March. Markets came off their record highs from February to take our portfolios – and our emotions – on a rollercoaster ride.

It’s not over yet. As the 2020 presidential election heats up and COVID-19 runs its course, we should probably brace ourselves for another 3-6 months of volatility. In the grand scheme of things, 3-6 months is a very temporary, short-term problem. But for your clients, 3-6 months can feel like an eternity. As their advisor, they’re looking to you for reassurance that they’re going to make it out of the storm financially intact.

It can be challenging to know what to say when trying to soothe clients’ frayed nerves. One idea is to have a strategy in place before a downturn, so you’re not figuring it out in the heat of the moment. It’s similar to how astronauts have a plan for every scenario and situation. When something goes wrong, they simply refer to the manual and follow the protocol they learned before they ever left Earth.

What should your “market downturn protocol” include? We suggest four critical steps:

1. Communicate.
Good communication seems to be the first thing to go when markets take a tumble. Let your clients know what is happening in a timely manner. And don’t just talk at clients, talk with them. Answer their questions. Listen to their fears. People just want to know that they’re not in this alone and that someone’s in their corner. A simple phone call to say, “Hey, how are you doing?” can go a long way to establish trust and show clients they won’t be left to fend for themselves.

2. Review the plan.
If a client is genuinely anxious about what’s happening with their money, offer to revisit their strategy. Reassess their risk tolerance; they may be discovering that their appetite for risk isn’t as high as they had initially thought. You may or may not make any changes to their plan, but at the very least you’ll have the opportunity to remind them of their goals and how their plan helps get them to those goals. You’ll most likely also be able to demonstrate that they are still on track and things aren’t as dark as they may have initially seemed.

3. Provide perspective.
Remind clients that investing includes ups and downs – but what’s important is the overall upward trend over time. We’ve had virus scares and oil price wars before, and markets have historically come back. When things seem bleak, it’s good to give a reminder that we’ve weathered these storms before and come out okay in the end.

4. Acknowledge.
Emotions are powerful and real, and often cause people to act irrationally. Don’t discount how your clients are feeling or brush off their fears as unfounded. Remain calm and impartial, acknowledge how they’re feeling, and let them know that you’re here to help them navigate in good and bad times.

In the end, times of turmoil are an opportunity for you to solidify your value as an advisor. It’s a time for you to demonstrate confidence and competence in the plan you’ve put together, serving as a calm port in the storm for clients when markets turn volatile.

 

1117245 – FOR INVESTMENT PROFESSIONAL USE ONLY. NOT FOR USE WITH CLIENTS OR THE PUBLIC.

webteam

Leave a Comment