Voices: Talking points to help clients navigate market volatility

March 17, 2020 4:07 PM

When it comes to the coronavirus pandemic’s effects on markets, clients aren’t the only ones with questions. As financial advisors, we need to know the best ways to help them achieve cleareyed, long-term mindsets regarding their portfolios — and reassure them that we are actively on the case in protecting and advancing their best interests.

At our firm, we agree with Warren Buffett that investors with 10- to 20-year time horizons should stay focused on company's earnings.

Here are some additional thoughts:

Q: What’s the best way to speak with clients who are in or near retirement?

A: Clients typically most concerned about market volatility are those who are currently taking out distributions or are set to retire soon. It’s helpful to explain how many years of distributions your client has left before they would be forced to liquidate securities that have been impacted by the market decline. Explain that distributions are funded by the robust performing bonds and cash in the portfolio. Tell them the people who actually come out best are those who think about things in the context of their own plan, not in terms of trying to predict the market.

Q: What is the best way to keep clients calm and address their concerns?

A: First and foremost, clients should know you are paying attention to events and to them. In a recent post, Michael Kitces and Carl Richards urged financial advisors to not just tell clients to stay the course, but to show them that you, as the advisor, are on the case and managing their situation — even if the current decision happens to be to stay the course anyway. That’s the sort of responsiveness needed to maintain client trust.

Q: How, specifically, do I let clients know that I’m paying attention and doing more than watching their portfolio plummet in value?

A: Most clients do not really understand how you manage their portfolios on a day-to-day basis — so explain it to them. Describe, for instance, how your rebalancing software sends you a report each day so you can review their allocations. Tell them you are keeping an eye on the fees in their portfolio from mutual funds and looking for opportunities to reduce these. You can further explain your process for investment selection and when a security merits being sold.

It is important to stay in communication. Advisor and columnist Carl Richards recommends a weekly roundup of the top 3-4 articles you are reading and think your clients would appreciate. Include straight-talking articles about smart investment moves (stay the course) as well as another financial topic such as falling interest rates. Make sure you also include a “soft” article about something you like. Maybe it is about a movie you watched or a book you are reading and recommend. This is a way to add a more human element that is not solely focused on the market.

Q: What if my client is fixated on her or his investment losses and is questioning my value as an advisor?

A: Educate them about other value-adds you provide. Some suggestions:

Cash Flow and Savings: We are reviewing the savings for each of our clients in 2019 versus the financial plan projections to make sure that they are on track. You cannot control the market, but you can control your savings.

Taxes: Send 1099s and tax information to clients’ CPAs. Let the CPA and client know that you are free to jump on a call to explain the client’s tax situation further and begin planning for 2020.

Mortgage Refinance: Reach out to all clients with mortgages to review if they can benefit from the recent rate cuts. This is a good way to let them know that you are there and paying attention without creating fear or anxiety about the market.

Insurance: Follow up with clients to review their life insurance, disability, LTC or property and casualty insurance.

Q: What if all else fails?

A: Purchase Carl Richard's book, “The Behavior Gap”, for your clients. Richards does a great job of explaining behavioral decisions that lead to the large gap between market returns and actual investor returns. While your clients value your opinion and trust you, it is good to have outside resources such as Richards, Warren Buffett, etc. reinforce your advice.

Above all, remind clients that time, as always, will restore things to normal — even if it’s a new normal.