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Recent events have escalated investor concerns about their portfolios.
Given the market tumult, many advisors know they should be communicating with clients, but hesitate because of uncertainty about what to say and apprehension about making things worse rather than better.
Here are five general guidelines for client communication in turbulent markets and five tips for crafting the message that you send today.
Some general principles:
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No news is NOT good news
Some advisors believe that if you don’t hear from clients, everything is fine. While that might be true in some cases, the majority of anxious clients won’t pick up the phone and call you – rather, they’ll sit and stew … and be vulnerable to the next advisor who contacts them offering to talk.
A critical quality that drives satisfaction with advisors is clients being confident that that they’ll hear from you when there are important developments, and that you’ll be proactive rather than waiting for them to call.
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Don’t wait for definitive answers
I’ve had advisors tell me “Things are changing too fast to be able to say anything concrete” or “I’ll call when things are clearer.”
Guess what: By the time things are clear, it will be too late. Clients need to hear from you in the heat of the problems, not after the fact.
As for being able to say something definitive, clients generally understand that things are changing quickly and aren’t looking for cut-and-dried solutions. What’s critical is that they know you’re on top of things and can be relied on to keep them up to date. Most clients will be happy if you say: “There’s a great deal of uncertainty right now, but here are three things we do know …. “ Then finish by promising to provide updates as new information becomes available.
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Be specific rather than general
During times like these, the more concrete and specific you are, the better. So, for example, saying “Based on earnings, the S&P is cheaper today than at the low in March 2009” is much more persuasive than saying “stocks today look exceptionally cheap.”
And avoid anything that could be interpreted as a sales pitch. That means staying away from charts with fund company logos, since those risk being seen as biased and self-interested. And be careful about timeworn charts like “the impact of missing the 20 best days” as a reason to stay invested. While they may not say it, many investors’ mental response to this chart is “and what happened if I missed the 20 worst days?”
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Provide a balanced perspective
In these kinds of markets, clients are looking for objective guidance and a balanced point of view.
To provide that, address both sides of the argument. If you think market fears are overblown, start by outlining the genuine causes for worry before going into the evidence that supports your case. By first acknowledging the real issues that have fuelled concerns, you build your credibility when pointing out countervailing arguments.
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Don’t media bash
Many advisors grind their teeth when they see headlines about stocks that “plummet” or “plunge” after a 4% decline. These words summon up images of an elevator in free fall after its cable has snapped, not markets experiencing a painful but not abnormal drop.
That said, criticizing the media will only make you appear defensive – since this is an argument you’re unlikely to win, you’re better to keep your thoughts on the media to yourself and move on to other topics of conversation.
Some specific things you might want to include in your message to clients today:
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“This is not 2008 all over again … and the United States is not Greece”
Some recent commentary has suggested that we’re seeing a reprise of 2008 or that the US debt rating will follow that of Greece.
Without dismissing the real debt and unemployment challenges faced by the United States, today’s issues are nothing like those of 2008, when it truly did appear like the world could fall into a 1930s style depression. To illustrate the difference, here’s an early 2009 Wall Street Journal column by respected Harvard economist Robert Barro, suggesting that historical precedent indicated a 20% chance of another depression.
Along the same lines, remind clients that while dealing with deficits and funding Social Security and Medicare will require some tough decisions, the good news is that the U.S. does have options that many other countries lack.
It clients are anxious about America’s future, without being in any way complacent, point out that America’s top universities and the vitality and entrepreneurial spirit of its private sector are still the envy of the world. The concentration of global technological innovation in Silicon Valley is one example of that. Another is that US universities remain the destination of choice for the best and brightest from around the world – nowhere else comes close.
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“Here are perspectives from respected experts”
In tough markets, you can bolster your case with articles from credible sources featuring recognized authorities. A classic example was Warren Buffett’s October 2008 article in the New York Times, “Buy American, I am.”
Publications like Forbes, Fortune, Bloomberg Business Week, Barron’s, the Economist, Financial Times and Wall Street Journal can all be sources of compelling articles that you can email clients. Note that for Barron’s and Wall Street Journal, there is limited access unless clients are online subscribers – be sure to check this first.
In the fall of 2008, I talked to one advisor who made this offer to clients: “My team and I spend many hours each week reviewing a variety of the very best sources for new insights. Given how uncertain things are right now, if you like I’d be happy to send you one article each Friday that we’ve found especially useful in the past week.”
Most clients jumped at the offer. He wrote a short note with each article and for a fairly small investment of time had weekly face time with his clients. The response was overwhelmingly positive and he continued to do this right through the spring of 2009. In a conversation last week, he mentioned that he’s started doing this again – although this time plans to continue this indefinitely for those clients who want to get these articles.
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“And now you can watch these experts as well as read about them”
While written commentaries from experts can have a positive result, including links to video interviews in your client communication can be even more powerful – there’s no substitute for the emotional impact of seeing a respected expert live and in person.
Finding the right video to send can be worth the effort. Here are examples of some recent videos you could send clients:
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“Re-evaluate portfolios”
For any clients who are anxious, this is a natural time to sit down and revisit their portfolios. If the kinds of ups and downs in markets we’ve seen are too much to live with, one solution is to reduce the exposure to stocks. Given today’s rates on bonds, this will typically require reducing expectations on long-term returns and will mean that core assumptions in financial plans will need to be revisited. These kinds of discussions aren’t easy – but are essential for clients to have portfolios they can live with.
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“Stick to core principles ”
Past downturns have taught us at least three lessons.
First, use the current downturn to help clients understand how much they can live with and design portfolios that operate within those risk parameters. Something that can reduce stress for retirees is to have an ample cash cushion at all times, so that living needs can be funded without having to sell assets at depressed prices.
Second, remind clients that once you’ve got the right asset mix and appropriate diversification, portfolios need to be monitored to ensure that this asset mix is maintained. That means regular rebalancing back to the target asset mix and ensuring that no one stock sector assumes too much weight.
Finally, warn clients against taking rash actions. Good decisions are seldom made when emotions are at their peak. If they want to make a drastic change in response to something they read or see, urge them to take 24 hours before acting on that impulse. That “cooling-off period” could end up being one of the better uses of time in markets like these.
No one approach will work for every advisor. As you consider your client communication in the next while, think about adapting some of these tips to let clients know that you are on top of things and are there for them – in markets like these, knowing their advisor is being proactive and monitoring their portfolios is one of the key things that can reduce investor anxiety.
conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written and video commentaries, go to www.clientinsights.ca. Use A555A for the rep and dealer code to register for website access.
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