After nearly six years of uninterrupted gains, the last 12 months or so have been marked by bouts of hyper volatility that have shaken stocks across the globe. This is due to a variety of factors, including, among other things, renewed doubts about global growth, an uneven recovery in the United States, lower commodity prices, the specter of dislocation in the European Union and lingering low interest rates that have pushed yields in some countries into negative territory.
This clouded macro picture has sparked a renewed sense of unease among many retail investors, who to a very large extent are still haunted by the portfolio-ravaging specter of the financial crisis of 2008-2009.
For financial advisors, this presents a complicated picture, because when clients feel this way they almost invariably want "crystal ball" answers about the future that are nearly impossible to provide. As a result, advisors across the industry are largely playing defense, fiercely protecting their existing client relationships while more aggressive efforts to acquire new clients are increasingly sidelined.
Interestingly, current demographic trends should be favorable for financial advisors right now: Retiring baby boomers, longing for income in a yield-starved landscape, need sound, professional advice more than ever. Advisors, therefore, should think of the current uneasiness as an opportunity to take bold steps that not only grow and strengthen their practices but also differentiate themselves from the rest of the pack.
To do this, advisors must first address what’s driving their clients’ fears. Yes, the wounds of the financial crisis are hard to forget. Yes, the current environment seems fraught with ambiguity. But there will always be some level of uncertainty in the world. Baby boomer investors especially have lost sight of this fact, most likely because the1990s and early 2000s were unusually stable from a geopolitical and macroeconomic perspective. They forget that those relatively happy times were a historical aberration, not the norm.
From there, the financial advisor should recast the conversation, focusing on what investors typically can control—their own personal financial plan. A good way to drill this message home is to present two choices. They can worry about Europe, the price of oil or a range of other uncontrollable economic data points. Or, instead, they can emphasize the fundamental issues that are both more manageable and ultimately determine whether their financial plan is headed in the right direction.
So consider this a call to get back to basics. This is a time to be direct with clients. Tell them to focus on what they can control and take the opportunity now to carefully walk them through a complete re-examination of their financial plan. Consider asking the following top four questions: