Grade Yourself on August’s Moment of Truth

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:

  1. Set the stage for communication during turbulent markets
  2. Decide when to reach out
  3. Craft your message
  4. Borrow credibility
  5. Identify clients needing special attention.
  6. 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.