You’ve undoubtedly had some tense conversations with clients during these times of volatility. At times, you’ve probably felt more like a counselor than a coach, as you tried to keep them from making emotional decisions they could later regret. Thankfully, there are some steps you can take to cushion their rocky ride.
Start with a pound of prevention
Begin each new client relationship with ample time and concentrated effort to get to know them well. What are their personality traits? What are their life goals? When will they need to start drawing out of their portfolio and how much will they need? How much risk are they willing to take?
Set appropriate expectations early on
Based on what you learn, help your client set clear, realistic, long-term goals and build a solid, prudent strategy for working toward them. As you do, discuss the relationship between risk and reward. Emphasize they should expect dramatic, short-term fluctuations. Remind them that it is important to stay cool-headed and focusing on long-term goals – even when you’re tempted to react impulsively.
Don’t wait for clients to call when the markets are turbulent. Reach out to them frequently to provide a reassuring voice of reason. Recognize what they are hearing in the media. Remind them that no one can predict market movements with certainty and many of these “experts” are entertainers – not advisors – who may stand to benefit personally from sensational headlines.
Practice active listening
During conversations with an upset or irate client, pause, take a deep breath and smile. Doing so, will make your voice calmer and more even. Giving clients the opportunity to share their anxiety may actually diminish it. If it doesn’t, ask additional questions. Find out if stress is affecting them physically. Are they having trouble sleeping? If so, their portfolio may not be appropriate for their risk tolerance.
Remind clients the score at the beginning of the second inning doesn’t really matter at the end of the game, and successful investing requires taking temporary market swings in stride. On average, pullbacks happen three times a year; corrections occur once a year; and the impact of volatility declines the longer you hold on to stocks.
Maintain a strong defense
Remind your clients that you are watching the market closely, monitoring their portfolios and still believe in the overall strategy you created with them. Assure them that the current market volatility has not caught you off guard. You expected it to occur at one point or another, and that is why together you should choose a well-diversified allocation of assets. Encourage them to keep their eyes on their long-term goals rather than obsessing over day-to-day market movements.
Let your clients know every market cycle presents opportunities. A stock market correction can be a good time to take advantage of bargain prices on quality stocks.
Your clients may also consider tax management. Market dips may be appropriate times to sell some depreciated investments in taxable accounts to realize deductible losses and offset taxable gains. They may also want to look at transferring underpriced assets in a regular IRA to a Roth IRA while their tax hit will be reduced.
Keeping your eyes on the future
While few of us would choose falling stock prices, sharing your confidence and compassion with your clients during difficult times can build incredible loyalty. Consider the people you trust most in your own life. Undoubtedly, they earned the faith you have in them by supporting you through good times and bad. In the same way, walking with your clients through up and down markets can build a deep level of trust, strengthen your relationship and encourage future referrals.
Written by Securities America for distribution by Robert Santoriello