Even clients with a long-term view get nervous. How do you handle their anxiety when we encounter a couple of the weeks of market downdrafts like the ones we’ve just seen?
“It drives me crazy,” said Jeff, a veteran advisor whom I spoke with on Friday. “The markets have a hiccup, and clients who three months ago confirmed that they’re in it for the long run are on the phone wondering if they should sell.”
In the last couple of weeks, stocks were down less than 5% from their peak. “In the grand scheme of things, that’s a rounding error,” Jeff continued. “But based on some calls we’ve got, it’s like the world’s coming to an end. And of course, it’s the same clients who call every time markets have a bit of heartburn and I have to talk them off the ledge. This sucks up a ridiculous amount of time and energy. I’m sick of these conversations and wonder if I should just punt the nervous Nellies in my client base. ”
It’s understandable that advisors get frustrated when clients panic after small declines in the market. Here some strategies you can put in place to minimize the disruption and actually turn market downturns to your advantage.
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Client worries today have little to do with the magnitude of recent declines. Rather than dismissing anxious clients as “nervous Nellies,” understand that concerns stem from a number of issues:
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Recent headlines have been dominated by macroeconomic concerns such as the Ebola virus, hostilities in the Ukraine and terrorist threats in the Middle East.
In the last few months, the media has featured considerable coverage of elevated valuations for U.S. stocks – and large one-day declines increase the concerns arising from this coverage.
As they move into retirement, clients feel more vulnerable to market declines – and in some cases, there’s still a hangover from the global financial crisis six years ago.
Whether or not these are good reasons to be concerned, they cause some clients to worry – with the result that they call advisors such as Jeff, asking whether they should reduce their market exposure. One issue is that when the client initiates the call, advisors find themselves on the defensive, explaining the rationale for the existing portfolio.
That’s why advisors should pick up the phone this week. Contact clients who, based on past experience, are likely to be nervous.
There are three reasons to take the initiative here. By making the call, you can frame the conversation in a positive way and avoid being on the defensive. Some clients will be reassured that you’re on top of things – the thought process is that if their advisor is worrying about markets, they don’t have to. And finally, in my 2009 article on the power of proactive calls I explained how by initiating the conversation, you get much more credit in clients’ eyes than if they place the call.
Structuring proactive contact
There are three steps to putting together a campaign to make proactive calls.
Identify clients who are worrying: Focus your calls on clients who are likely to be worrying, because that’s the most efficient use of time and because it will help you avoid creating concerns where they don’t exist. The best way to predict clients are who are anxious today is to identify those who have been nervous in the past. Put together a list of clients who’ve called and expressed concern during relatively minor downturns in the past – those are the ones you on whom you should focus.
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Set a trigger to make calls: To avoid creating undue alarm, identify a trigger to start making these calls. You could divide clients into tiers, so you have one group that you call when markets are down by 10% and another for when they decline by 15%.
The problem with using the level of market declines as the catalyst to initiate calls is that, as Jeff points out, the actual decline may not be what causes concern. Often media headlines or one or two big single-day drops cause anxiety. Consider using the “tip of the iceberg” principle: Track the number of calls from nervous clients. If you get two or three anxious calls, chances are that there are other clients who are just as nervous.
Something that removes doubt as to when to call is an explicit understanding with clients on how much of a market decline will cause a phone call or meeting to revisit the portfolio. In my article on a tool to help clients make tough decisions, I outlined how putting this in writing will help nervous clients stay the course.
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Script your message: When talking to nervous clients, you need to walk the line between acknowledging the real issues they face while providing context and reassurance. Suppose you call a client and get their voicemail; you could say something like: “I’m calling because after a great run, the last couple of weeks have been a bit challenging for markets. I wanted to chat briefly about my thinking on where we stand. I’ll send you an email, so there’s no need to call me back. But if you’ like to talk about this, feel free to give me a call.”
And then the email could be something like:
“Given that the last while has been a bit challenging for markets, I’ve heard from a couple of clients asking my thoughts. In fact, I just completed my regular quarterly comprehensive look at where we stand.
Recently, issues like the Ebola virus, the Ukraine and terrorists in the Middle East have dominated headlines. These are clearly not trivial and need to be monitored, but I believe it’s the economic recovery in America and Europe and the timing of interest increases in the U.S. that matter more in setting market direction. While stocks are not as cheap as they were, continued signs of a recovery in the U.S. and improving consumer and business sentiment lead me to conclude that on balance stocks still offer reasonable value.
I will be monitoring this closely and will let you know if there is new information that causes me to change my views, but for the moment I recommend that clients maintain their stock exposure. Feel free to give me a call if you have any questions or would like to discuss this.”
By taking the time this week to reach out to clients likely to be anxious, you well send a positive message and increase the odds that clients will walk away reassured.
Dan Richards 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 commentaries, go to www.danrichards.com or here for his videos.
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