Bear markets are often boom times for financial advisory practices angling to capture more clients, as investors who never used an advisor in the past suddenly think professional advice might be a good idea.

More important, however, is the large group of investors who have had an advisor—sometimes for years—and who decide to shift their accounts, often worth millions of dollars, to a new advisor. With that switch, these clients create a winner and a loser.

“We see more movement in bear markets than at any other time,” said Peter Mallouk, president and CEO of Creative Planning in Overland Park, Kan., which globally manages $225 billion in assets, $135 billion of which belong to private investors. Mallouk said the biggest growth years for his firm, acquired in 2004, were marked by Covid—“the best twelve months we’ve ever had”—and the Global Financial Crisis.

“It’s easy when the market is going up. There’s not a lot of money in motion, as clients will tolerate stuff,” he said. “But when they really start to suffer losses, and they see inaction and lack of communication, they’re more willing to move.”

The losing advisor may never know for sure why a client left, but the details are readily available. Just ask the winning advisor. The client is usually very forthcoming about what happened, said advisors who have been in this situation, and surprisingly performance is not the biggest issue.

While performance is often a prompt for investors to think about their advisory relationship, more often than not the critical factors are things advisors can actually do something about, well in advance of realizing a client is unhappy.

“Clients are looking at whether their advisor has kept the promises they made. They want to see that their advisor is being proactive and productive. And they’re valuing good communication,” Mallouk said. “Of the calls we’re getting now, 95% are for these three reasons—broken promises, lack of communication and lack of proactive ideas.”

Sam Taylor, president and CEO of Wealthview Capital in Jackson, Miss., said the onboarding process at successful firms is designed to be intimate and trust-building so that the advisor can quickly get to know the client very well in order to create an appropriate investment strategy that reflects that client’s risk tolerance and aspirations.

“Once they’ve revealed their secrets and biases and phobias, once they go through that, they’re not going to want to go through it again,” he said. “So for a client to leave, it often means something has ruptured that trust, or it wasn’t there to begin with.”

For example, he said, one of his new clients left their prior advisor because they had received very little contact from him since the account was set up—a couple of years ago. “That is a significant account,” he said. “I was a little shocked that the prior advisor didn’t do more to develop that rapport.”

To put this in perspective, research by Cerulli Associates in Boston found that in down markets 17% of clients indicate they’re thinking of switching, and that percentage rises in the $2 million-plus crowd.

“[This] suggests that even in down times, most clients are sticking with their provider, particularly if they’ve had a long relationship with them already,” said Scott Smith, Cerulli’s director of advice relationships, by email.

However, he said, the changed market conditions mask the true reason for the dissatisfaction, which is more likely to originate in a client’s changing needs. The down market only illuminates the gap.

When clients do look for another provider, the top three attributes they value are the new account’s attractive and unique products (28%), as well as expertise (27%) and responsiveness of service (25%), Cerulli found.

“These suggest a greater desire for more services than what [clients] are currently receiving, as well as better quality of service that is more high touch than the likely basic services they are currently receiving,” Smith said.

Now that the U.S. is 10 months into a bear market that’s showing no signs of abating, there’s never been a better time for advisors to reflect on whether they’re doing all they can to keep their clients. 

Communicate Often. Repeat
“If there’s one piece of advice I can give RIAs in how to be successful during a market like this, it’s to reach out proactively to your clients,” said Peter Nesveld, a partner at Republic Capital Group in New York, which makes investments in advisory firms. “People are nervous, and in some cases people are scared. You don’t have to have all the answers, but you do need to take an active interest in their planning, check in with them. Because if you don’t call them, someone else will.”

Bryce Sanders, president of Perceptive Business Solutions in New Hope, Pa., and a specialist in training advisors for high-net-worth client relationships, likened those relationships during turbulent economic times to being in a pressure cooker.

“If I don’t put the valve on top how and when I’m supposed to, it explodes,” he said. “If the market is down and you don’t call your client, the lid blows off. The advisor has got to call the client on a regular basis to essentially be taking the pressure off.”

Firms like Sandbox Financial Partners in Bethesda, Md., are in great shape to ramp up those touchpoints with clients. In the last two years, the firm has built out internally, hiring more general staff and investment specialists so the client-facing advisors would have more time to talk to existing clients and meet with prospective clients.

“Communication and transparency in our industry go hand in hand with trust. During times when things are good, brokers don’t feel they have to communicate and when times are hard they’re hiding from their clients hoping it gets better,” said Brian Salcetti, Sandbox’s CEO and managing partner. “We have people coming in saying, ‘I haven’t heard from my broker since last year, but I’m seeing him on social media, vacationing in nice places.’ When we get in these extreme environments, 100% we want to touch more. So we’re pushing out more information and communication, more calls, more blogs, more social media, and definitely more education.”

For Richard Kahler, founder of Kahler Financial Group in Rapid City, S.D., the increased efforts his firm makes in communication pay off in an unexpected, but very helpful way.

“We know that clients who open our blog posts, who read our communications, they’re far less likely to call us. And when we call them, they’re fine,” he said. “So we do a great job of communicating. We’re touching our clients with weekly videos or columns.”

Always Promote Good Ideas
Sanders is a big advocate for advisors being the experts they purport to be.

“Clients know their advisor can’t predict the future, they but need to know the advisor is making the right decisions,” Sanders said. “Advisors need to be able to explain what’s in the portfolio and why.”

And there are plenty of opportunities in bear markets, experts said, just not the ones investors have been leaning on heavily in the last decade.

Mallouk rattled off his shortlist: Roth conversions, tax harvesting, diversifying a position in something that’s similar to something else, looking at estate planning strategies, using lifetime exemptions or annual exemptions when assets are discounted and getting appraisals of a business while it’s lower in value.

“There are so many opportunities that present themselves in a bear market, but you have a short window, usually a short window, to take advantage of them,” he said.

Even CDs can look attractive these days, Salcetti added, and at the very least an advisor who mentions them to a client is showing some initiative.

“There’s a lot of things you can do around the edges that will show you’re doing something for the client that is additive, you’re not just sitting on your hands and waiting,” he said. “There are too many brokers who aren’t managing the money, who will say ‘Stay the course, stay the course.’ But if you do that, how long does it take for you to recover and start to make money again?”

And clients don’t want to hear that, he said.

“They want to hear what can we do,” Salcetti said. “Clients love having those conversations. If you come to the agreement there’s nothing to do, that’s fine, but at least you’ve had the conversation and your client knows you’re looking out for them.”

Delivering On Promises
Above all, successful financial advisor firms don’t make promises, at least not any tied to performance, advisors said.

“Promising results is not a good practice and not setting the right expectations. A lot of advisors can’t execute on those promises. It’s a trap. If you quote a number, the client is going to be focused on that number, and it’s very hard to get them to look at something else,” Salcetti said.

“There’s a side of the industry that’s pushing product and performance,” Taylor agreed. “At the same time, people like to believe that there’s ‘smart money’ out there and someone can ‘beat the market.’ When that doesn’t happen, their confidence can be shaken.”

Taylor said that clients tend to overestimate their ability to withstand market declines, and they need to be shown that they could potentially “beat the market” and still not achieve their life goals. For that reason, he said he spends more time connecting with his clients over their goals, and showing them how that might be achievable with the least amount of risk. 

“We’re big planners, and we lead with planning, not performance. If you lead with performance, once the account starts underperforming, what’s left?” he said.

When Mallouk’s Creative Planning onboards a client, they’re told what investment climate they’re in, how it can change, and the ways that bear market investing will be different from bull market investing, according to their own plan.

“And then we do exactly what we tell them we’ll do in a bear market. There are no surprises. You have to be delivering on your promises,” Mallouk said. “Advisors make all kinds of promises when someone comes on board, and when the waters are bumpy the clients are looking at the captain to deliver. And she needs to deliver.”