If there ever is a time when investors are looking to sell, it is probably now when stock market volatility has reached an all-time high.

And while it may not be a smart decision to sell, it’s an important crossroads for both financial advisors and clients, said Frank Murtha, co-founder of MarketPsych, which specializes in helping financial advisors apply behavioral finance to build relationships, increase assets and improve returns. 

In a piece he wrote on behalf of San Diego-based Brandes Investment Partners, Murtha, who has a Ph.D in counseling psychology, argued that panic selling can harm a client’s well-being, and a financial advisor may be considered in violation of his fiduciary responsibility if he facilitates such actions. Advisors, he said, do not control what the client does, but they certainly can influence the client’s action.

So if clients are bent on selling at least part of her equity portfolio and raise cash during market crises, Murtha suggested there are ways the advisor can provide guidance and support before the client makes the decision.

First, he said, advisors should discourage binary thinking. Operating in an “all in” or “all out” framework is unhealthy and destructive, he said. This kind of behavior, which Murtha refers to as ‘thought trap,’ can increase the stakes of the decisions, raising their emotional impact and the consequences of being wrong. “Seeing shades of gray and taking incremental steps often promotes emotional stability,” he said.

Murtha said advisors also should discourage perfectionism. He said they should establish the expectation that their calls will not correspond optimally with market tops and bottoms, and that they do not need to. He noted that buying low and sell high is a worthy maxim, but buying at the bottom and selling at the peak is not.

Furthermore, Murtha said having an idealistic attitude can prevent prudent, incremental moves that restore a sense of balance. “Do not let the perfect become the enemy of the good,” he added.

If the client decides to sell, Murtha said the first question to ask the client is, “Do you intend to get back in?” Murtha explained that this is important because there must be a plan for what happens after a client sells. One of the biggest mistakes investors make is not having a plan, he said.

“The big problem is not that people sell out, but that they don’t buy back in. That happened to a bunch of folks back in 2008-2009. You don’t want an impulsive move to overtake sound financial plans and long-term investing,” he said.

Murtha said a critical element of the planning process is establishing commitment on the client’s part. He suggested that advisors look to create an incremental series of moves to re-engage, based either in terms of time elapsed or on percentage moves in the market or in the client’s portfolio.

If a client decides to not get back into the market, Murtha said it is time for the advisor to have a deeper conversation with the client about the implications of the decision and perhaps tell them it is time to revisit their long-term goals. Advisors may finally need to tell clients they may need to find another advisor.

“It may seem a bit harsh, but by the same token, just because the client wants to do something, doesn’t mean you should say, ‘OK, let’s do it’,” Murtha said.