Advisors cannot put their heads in the sand. A market slowdown is inevitable. We might not know exactly when, but history has proven we cannot escape recessions. The problem is, that when things are going well, most advisor do not prepare for the worst. While they might prepare their clients, they do not prepare their businesses.
The Good News (And The Bad News)
When a recession hits, that can be the best time to gain new clients. Wealthy individuals and families can lose faith in their current relationship and be open to moving their assets to someone else. Plus, those that do not have an existing financial advisor often realize that they should not be watching over their wealth on their own, especially in periods of turmoil.
So, the potential exists to lose business, but also the potential exists to win new clients. First, focus on retention. Make sure the house is in order before looking for outside growth. It is easier to keep a client than win a new one. With that said, although during uneasy market performance advisors are their busiest, this is when they should be extremely active with their new business activities.
Here are a handful of helpful tips from a dozen advisors that have been successful at keeping and growing their businesses in down markets:
Prepare Clients For Declines
“70+% of new business comes from referrals so have to have happy clients. Keeping clients happy is about proactive communication and managing their expectations. We’re up front and often telling them ‘your portfolio with its 60 percent equity allocation, in the last two significant market declines, lost more than 30 percent of its value…and this will likely happen again at some point.’ When they lose 20 percent, they think we’re really smart while their friends (with a similar mix) might think their advisor isn’t very good. If an advisor’s value proposition is some rate-of-return number and not holistic financial planning, they’ll probably lose clients when their strategy is out-of-favor in any economic environment.”
—Gary Vawter, owner and senior advisor at Vawter Financial
Keep Clients Happy
“Severe market downturns are never easy for clients, and it’s typically when the strongest advisors do their best work and are needed most. Advisors who haven’t done the planning work necessary to understand the client’s long-term goals, who don’t meet with their clients on a regular basis, and don’t communicate well end up with unhappy clients who are looking for more. Good advisors tend to get more clients referred to them because of this. In addition, some of the prospective clients you already know reassess their relationships and reach out for a second opinion.”