You and your clients will experience down markets. They might have had this experience already. It has been said that “the market climbs a wall of worry,” yet when things are going fine, there is the perception this climate will last forever. One day, you wake up and that is the day your client discovers the market has fallen off a cliff. As their advisor, what do you do?
Clients have short memories. We all do. We have heard the stock market averaged about 10% a year going back decades. We are used to short drops, followed by steady upward progress. What can the advisor do when this sequence of events changes?
1. Call every client. They are paying for advice. If the lead story on the news is the stock market is declining/tanking/plunging, do not assume they missed the message. Do not think: “They will call if they are concerned.” Assume your competitor is asking, “When was the last time you heard from your advisor?” Yes, e-mail is another way to reach out, but clients tend to be attached to their money. They need to know you are paying attention to their investments.
2. Expect to get the blame. Everyone seems to have 20/20 hindsight. It seemed so obvious this was going to happen. Why didn’t you anticipate it, warn me, get me out? They might assume you got your best clients out and they are not on that list. No one is willing to admit they were greedy or did not return your calls. Your CRM system should have a record of when you last spoke or reached out to them. This is not the time to argue. You don’t need to accept blame either. The issue is looking at the “cards you have been dealt” and determining how to move forward.
3. Pay attention to asset allocation. This might be an ongoing conversation. They might not have wanted to lighten up on stocks when they were going up. No one knows how long this decline will continue. Hopefully, the bond side of their portfolio is not sustaining as much damage as the stock side. You can reintroduce the logic of asset allocation, “buying low” when an asset class is out of favor.
4. Do you have cash ready? Why are clients worried? Lots of reasons, but one is their assets are worth less and less each day. Their house varies in price too. Do they obsess over that? Probably not, because it is not as easily tracked. More important, they consider their house as a long-term investment. If they have cash flow coming in (salary) and a cash reserve to pay bills, they should consider their investments as a pool of assets to be tapped at retirement time. How much it fluctuates in the meantime is less important than where it (hopefully) ends up.
5. Ignore the market. My wife is better at this than I am. She remarks: “The market goes up; the market goes down” and changes the TV channel. I am more obsessive; despite the obvious fact I cannot control the outcome. You cannot ignore the weather. You can put the stock market out of your mind. They have an advisor. That’s you. If something needs attention, you can tell them.
6. Let the managers do their job. Many investors use money managers in separately managed accounts (SMA). Some investors are stock pickers themselves. If they are stock pickers, they have reasons to stay on top of the market. According to Investment News, in 2022, 22% of households had SMAs, up from 13% in 2020. Together, you chose and hired experienced professionals. You don’t stand over your plumber or car mechanic. You don’t tell your accountant or surgeon how to do their job.
7. What does your firm’s research department say? Investors choose to work with big firms for lots of reasons. One is the quality of their research department, those hundreds of people around the world, seeing foreign markets at ground level and visiting companies. Lean on their advice. Highlight awards they have won.
8. Acceleration. Remember how you learned about gravity, free fall and acceleration in school? The formula for a falling object accelerating is 9.8 meters per second squared. Put another way, acceleration means something is moving faster and faster over time. If the stock market was down 10 points one day, 100 points the next and 200 points the day after, clearly it looks like things are getting worse. The decline is accelerating. If the market is down 100 points one day, 25 points the next and 10 points the day after, it is still down three days in a row, but the amount of each decline tells a different story. Are things getting worse or is the market attempting to fight its way back up? What do your research people say?
9. What are the alternatives? The stock market has returned an average of about 10% annually for decades. You have seen the Ibbotson charts. It would be hard to find another asset class that has turned in better or even comparable performance. Are long-term bonds yielding 10%? Is there anywhere you can get a return similar to what stocks delivered in the past? Money is like water. It sloshes around. It will likely return to the stock market if alternatives do not offer comparable returns.
10. Buy when others are selling. If your client has spare cash available, they should consider it as an asset waiting to be deployed. This isn’t cash they need for bills. This is inheritance money or a nice bonus check that came in from work. If they don’t want to go along with your stock ideas, how about an index fund? Buying during declines can be done via dollar cost averaging. It gives them something to talk about with friends over the weekend.
11. Find good news. There is some out there. I respect an advisor who always found some good news to share by e-mail every week as the market was having a rough time during The Great Recession. Many investors tend to be natural optimists. They want reasons to believe things will get better.
12. Keep in touch. You called when the market started dropping. You need to stay in regular contact. The expression “hand holding” seems insulting, but clients need to know you are paying attention and are proactive. It has been said when you have a setback in life, you learn who your true friends really are. You want to fit into that category in a professional sense.
It can seem daunting to keep calling and staying in touch with people when the news is overwhelmingly bad. It can pay off when the storm clouds have cleared.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.