5 Things Any Advisor Can Do to Help Clients Through Market Volatility
There aren’t many certainties in investing, but when it comes to market volatility, one thing is for sure – investors see more than a stock price when they look at the S&P 500. They see their dreams and aspirations in the balance and can’t help but realize their vulnerability to things they seldom fully understand.
For an advisor, market volatility is no less stressful. The ebb and flow of stock and bond markets directly impacts the well-being of your business – especially AUM fee-based advisor firms. Volatility can evoke subjective decision making and fear – the antithesis of positive client investment experiences.
In a 2017 survey1, investors ranked their primary measure of advisor value. More than 75% of respondents cited things other than “Investment Returns”, led by sense of security and peace of mind (35%), knowledge of their personal financial situation (23%), and progress toward their goals (20%).
Why are these important? They show, clearly, what clients want most – and it isn’t to beat the market. They want peace, security, and assurance that they are moving in the right direction.
Here are 5 simple exercises to help demonstrate your ability to do that, particularly in times of market volatility.
1) Get in Front of Market Volatility
The first and most obvious exercise is to get ahead of the common client issues that accompany market volatility, such as subjective decision making. Advisors can do this by simply addressing the market.
You may serve many clients, making the prospect of conducting one-on-one discussions overwhelming. A good way to combat this is to leverage the right technology.
The Dimensional Fund Advisors’ 2017 Investor Feedback Survey2 shows that 87% of investors prefer market commentary to be delivered in a digital format. For example, send an email to your entire client base, providing a general market overview that prompts your clients to respond to that email with any questions they may have.
The email can help reduce some of the uncertainty associated from market volatility, which buys you time to schedule in-person meetings with those that want/need the extra touch during an uncertain time.
2) Tackle Portfolio Performance Head On
Portfolio performance may not be your client’s primary measure for advisor quality, but it is the vehicle through which their goals and financial peace of mind is achieved.
Directly address portfolio performance. In the post-DOL world, transparency is no longer a request, but a prerequisite. Clients increasingly demand it.
Are their portfolios underperforming? Say so, and explore why. Are they exceeding expectations? Great, show them how.
Clients might not expect you to beat the volatility, but they do expect you to fully understand their financial situation. By demonstrating an intimate awareness of their portfolio’s performance, you can check that box and ease their mind.
3) Revisit Your Investment Process
Assuming you are diversifying client portfolios in a way that aligns with their expectations, one of the most impactful things you can do in times of volatility is review the investment process.
This one is easy, but often overlooked. Going over your investment process again and again can feel like you’re living your own Groundhog Day, but it’s extremely helpful to clients. You’ve had countless conversations about your investment process. You are passionate about it and know it better than anyone.
But clients don’t. They may have bought into it once, but then they went on about their lives. They aren’t considering the process every day, because it’s not their jobs.
That’s why elevated levels of volatility are so dangerous. It skews investors’ baseline attitudes and expectations – a natural response to the anxiety and fear that often accompanies uncertainty, particularly when it pertains to money.
You can help clients better handle volatility, and the pitfalls that accompany it, by revisiting your investment process.
Run through the risk assessment they completed in the initial onboarding phase. Review the answers and discuss how they are playing out. Revisit the portfolio you built together and talk about how each strategy/asset is working together to perform in a way that reflects their market attitudes and expectations.
4) Talk About What Might Happen Next
Getting clients to baseline is only one piece of the puzzle. We know timing markets is impossible. Studies also show that market movement dictates around 75% of overall portfolio performance3. That means regardless of how well a client’s portfolio is allocated, they are going to feel market movement – just in differing degrees.
Take this opportunity to prepare clients for all possible market scenarios – continued volatility, stabilized growth, or the next bear market.
By helping clients understand the unpredictability of the market and preparing them for the impacts those scenarios could pose on their portfolios, you can dampen the emotional reactions that strain the advisor-client relationship, consume your valuable time, and threaten clients’ long-term financial goals.
5) Document Your Decision
Markets are constantly moving, along with the emotions and needs of the investors within it – making reliable documentation and thoughtful reinforcement the linchpin of a stable investment experience.
Documentation should begin with initial portfolio construction (your technology should assist you here) and continue through each client meeting. Recounting why a portfolio decision was made and how it supports your clients’ long-term goals does more than justify your actions. It protects clients from their own biases, which are prone to fluctuate with the market.
Bonus Point – Audit Your Own Process: The famous line, “The best-laid plans of mice and men often go awry”, is fitting here. It’s important to address the reality that sometimes plans (or assets, strategies, etc.) don’t work out like you thought they would.
Volatility is a great time to acid test the investment process. Are clients not as prepared for market volatility as you thought? Are certain strategies not doing their job in the overall portfolio? While we don’t advocate making decision based on short-term market movement, volatility can shed light on holes in the investment process, particularly portfolios that are under-diversified.
Orion Portfolio Solutions helps advisors prepare clients for every market scenario with a unique three-mandate investment process that’s designed to make client diversification discussions and portfolio construction easier for advisors. Click here to learn more today.
If you have additional questions about what was featured in this blog post, please contact us to see how Orion Portfolio Solutions can support your business through all market cycles.
12017 Investor Feedback Survey, Dimensional Funds
2Original Source: Understanding Your Clients: The Investors Survey – Presented at National LINC 2018
3Financial Analysts Journal, March/April 2010, 66. “The Equal Importance of Asset Allocation and Active Management.” 2010 CFA Institute
1024 – FTJFC – 1/11/2019