Moments of truth occur when clients make judgments about their advisors. Exactly such a moment came in mid-August as clients read alarming headlines about “plunging markets” and “market routs.” Here’s how to assess how you handled that moment.
First and foremost, did clients hear 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. In some instances, they may have wondered why you were missing in action.
Even clients with whom you had rational conversations in your last 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 reached out to clients in mid-August, there are two pieces of good news: First, while being in touch at the heart of the crisis would have been desirable, it’s not too late to do so now. And second, this presents an opportunity to put a plan in place for the next time you’re faced with a “moment of truth.”
There are six steps to that plan:
- Set the stage for communication during turbulent markets
- Decide when to reach out
- Craft your message
- Borrow credibility
- Identify clients needing special attention.
- Once you decide to move forward, make this your top priority.
Set the stage
As part of their regular reviews or email newsletters, many advisors talk to clients about the likelihood of a market correction. Some show charts depicting the number of declines of 10% or more with the length of time to recover afterwards. Others use graphs indicating the cost of being out of the market after past points of market turmoil, such as 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 at a rational level at a time when clients are responding emotionally to the events around them. These conversations are helpful to set the stage for dialogue with clients, but they don’t replace reaching out to clients when they’re in the heat of a market drop. It’s one thing for clients to hear you say that they will inevitably face another drop of 10% in the stock market; even for clients who’ve lived through this before, it’s something else entirely to read alarmist newspaper headlines and experience that drop.
By all means continue having these conversations with clients to reinforce the fact that markets will continue to gyrate, just don’t think that they’re a substitute for clients hearing from you during a big drop.
Decide when to reach out in advance
There are four common reasons that advisors don’t reach out to clients during periods of market turbulence:
- You don’t want to alarm clients who are not worried;
- You aren’t sure what to say;
- You’re waiting for more information and for events to become clearer; and
- You are available anyway to talk to any clients who are worried and who call you.
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, during tough market periods, when your clients talk to friends who’ve heard from their advisors, your clients’ confidence in their decision to work with you will be shaken.
With regard to the 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 alarm, you can frame the conversation 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. Based on what you’ve heard and read, what questions do you have about what’s happening in global markets?
Last week I talked to Stephanie, a veteran advisor who sent an email to clients on Friday, August 21, a week after U.S. markets started dropping and began calling clients that same day. She 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 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 that 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. By setting triggers beforehand and saying that if this happens I will reach out to clients, it takes the uncertainty and emotion out of the decision for me.
Craft the right message
When it comes to what to say, advisors tend to overthink their message. During times of market turbulence, most clients just want to know 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, say something like: “And how are you feeling given what’s going on in global markets?” Then sit back and listen. Hearing anxious clients out and actively listening to what they’re saying is critically important. Until they feel heard, clients 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 managers; shifts by those managers won’t be evident to those clients unless you make those changes clear.
One final suggestion is to stay away 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 it feel that calls were motivated by your interests 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 it is helpful to supplement your advice with perspectives from credible, trusted sources.
At the heart of the global financial crisis in 2008, Warren Buffett’s article, “Buy American, I Am,” helped play that role. Two columns that proved helpful to advisors in the recent bout of market excitement were Ron Lieber’s New York Times’ piece, “Advice after a market drop: Take some deep breaths and don’t do a thing,” and a column from respected Wall Street Journal columnist Jason Zweig, “Five things investors shouldn’t do now.”
Zweig’s advice in his column:
- Don't fixate on the news;
- Don't panic;
- Don't be complacent;
- Don't get hung up on talk of a correction; and
- Don't think you or anyone else knows what will happen next.
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 ten nervous clients before market events cause their anxiety to spike. These are the clients who you reach out to first when markets decline, perhaps using a lower threshold to contact them than you use for your client base as a whole and possibly inviting them to sit down and meet in person.
Having to perpetually hold hands 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 favor by continuing to work together. If you aren’t able to provide anxious clients with the emotional support they require, then you may both be better off if those clients work with someone who is willing to provide that support. But if you aren’t prepared to cut the cord with those clients, then accept that being proactive in periods of market turbulence is the price you pay for dealing with them.
Make it your top priority
Once market events dictate that you reach out to clients, you need to make this your top priority and adopt an “all hands on deck” mindset. Push all non-essential tasks to the side while you focus on getting out your update email and making key calls. Even if you have to spend some evenings and weekends to reach clients, that’s an investment worth making – in fact, for some clients a Sunday afternoon call that starts off “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.
As you think back over markets in the last half of August, ask how your communication looked through your clients’ eyes. If you didn’t reach out to clients, then get something out this week. And most importantly, begin preparing now to meet the test the next time a moment of truth takes place.
Dan Richards conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written commentaries, go to www.danrichards.com.
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