Recent market shocks driven by the Ukraine-Russia conflict are just the latest development over a long stretch of disruption and uncertainty for investors.
Recently, a veteran financial advisor mentioned to us that she was noticing an unusual trend: Clients who felt they were on strong financial footing each time the markets reached fresh highs also thought the broader economy was performing poorly—they were seeing the glass as half empty and half full at the same time.
As the pandemic wore on, her clients exuded confidence about their own personal financial situation but had reservations that key economic indicators were headed in the right direction.
Inflation worries, for example, were informing client decisions—never mind that inflation in 2022, accompanied by relatively low joblessness and reasonable wage growth, bears little resemblance to the stagflation of the 1970s.
The large-scale military conflict emerging between Russia and Ukraine punctuates, rather than alters, this emerging pandemic-era paradox: Advisors and their clients have witnessed wild gyrations in the stock markets, but the many clients who embraced volatility and stayed the course through the ups and downs since March 2020 have benefited from windfall gains.
The past two years have taught wealth managers that trying to guess what will happen next is a fool’s errand. Now, with more clients sending mixed messages about where they want their advisors to guide them, advisors need a strong, stable core set of values as world events may tempt them to be swayed by emotions.
Let’s Start With Values
When a client approaches a financial advisor from a place of high yet free-floating anxiety about initiating a mass sell-off of their portfolio holdings, the advisor should start with revisiting the client’s values. Without question, the pandemic and its resultant economic disruptions have shifted the life priorities of many clients. Some clients have decided, after two years of remote work, that the time has come for them to revisit a life dream of communing with nature in the mountains of Montana, or spending each weekend at art galleries and museums in Manhattan.
Other clients, faced with daily reminders of their own mortality, courtesy of the pandemic’s tragic impact on human life, want to get a jumpstart on retirement, and exit the workforce years sooner.
Put simply, significant changes in what the client values and prioritizes could indeed require dramatic changes to their financial plans and portfolios.
But by the same token, if values and priorities haven’t changed, then that should be the key starting point of the advisor-client conversation, which tends to diffuse much of the fear and anxiety.
Time For Tough Love
Whether or not a client’s life values and priorities have been significantly recast, or the client is worried that stagflation and volatile commodity prices will hurt their portfolio, the advisor should move to phase two of the dialogue which is comprised of two parts. First, be firm-handed about staying the course through the volatility, if the client wants to outrun inflation. Second, think long-term about building protective fencing around a cherished financial future—thereby putting the client on stronger footing to reach their life goals.
The three buckets of behavior advisors should address during such a tête-à-tête include how clients ought to spend their money, followed by how they spend their time, and who they spend it with. From there, conversations should address risk management and protections that prepare clients for those certain uncertainties.