You can’t control volatility, but you can control how you lead clients through it. Guiding them with a proactive communication strategy will change the way they see you and your firm, building loyalty that will pay off throughout the life of the relationship.
Since the last World War, the stock market has experienced 27 corrections 1. As an advisor, your chances of needing to walk clients through another correction are fairly high. The good news is that behavioral coaching—guiding clients to make rational, non-emotional investment decisions—ranks extremely high on the list of ways you can best add value to those relationships. 2
One of the biggest components of behavioral coaching is preparing clients for the inevitable market downturns they will experience in their investing lifetimes. This preparation is best achieved through a combination of both education and risk management. Just as important as planning, though, is how you communicate with clients while a market crisis is unfolding. As it turns out, there’s a right way and wrong way to do it. Not surprisingly, the wrong way is an easy trap to fall into because it involves doing what often comes most naturally—nothing. But being complacent can start a “vicious cycle” that erodes client confidence. Let’s take a closer look at how that works.
Complacency Triggers a Vicious Cycle
You may rationalize your decision for “no action” with the backdrop that you’ve talked to your clients about volatility and have gone over risk management with them. Based on that, you may assume your clients are feeling well prepared as the market tumbles. If they were worried, they’d naturally call or text.
While some of your clients may be in that boat, another portion of them will be in fight-or-flight mode, adding up their unrealized losses and wondering whether it’s time to jump ship. In this kind of situation, not hearing from you can lead clients to the assumption that you don’t care, are not as “on top” of their portfolios as you should be, or are avoiding reaching out to them. If the crisis continues, their fear may turn into panic, leading them to feel an intense need to take action. By the time they call you, you may have lost your chance to coach them out of a bad decision.
Proactivity Builds Assurance
By contrast, communicating frequently with clients in a market crisis can create a “virtuous cycle” that builds their confidence in you as their advisor. Staying ahead of client concerns with social media posts, emails, and occasional personal calls will demonstrate to your clients that you are on top of the situation and that you have a plan. As a result, they will be more likely to remain calm and less likely to want to sell in a panic. Over time, their investment performance will hopefully demonstrate the benefit of sound, long-term decision-making. By communicating well, you will have grown their loyalty and trust and increased the likelihood that they will refer you to friends and colleagues.
The Problem of Time
The benefits of communicating proactively in a crisis are obvious. So why don’t more advisors take that route? The problem is time. It takes time to coach clients toward making good decisions, but did you know that time spent dealing directly with clients pays off? Research by FP Transitions uncovered a direct correlation between time spent on client relationship activities and asset growth. Their study compared advisors who spend most of their time on client relationships against those who focus on investment management. The study found that advisors who focus on clients grew their practices at a significantly faster rate and experienced higher levels of profitability and ROI over time. 3
Leveraging Your Communications
The answer to the problem of finding enough time to communicate well with clients involves both prioritization and leverage. Since coaching is one of the best ways to add value to a client relationship, consider outsourcing, automating, or streamlining areas of your practice that don’t add as much value, such as administrative functions and portfolio rebalancing.4 In addition, explore ways you can get more bang from your creative buck. After consulting your compliance department, here are a few to consider:
Leverage your message across multiple channels. Start by noting each client’s preferred communication channels, and use those as your main way of reaching them during a market crisis. Deliver regularly timed messages across your social media platforms and through your website, blogs, and email.
Identify sources of timely, client-ready communications. It’s best to do this well ahead of time. Finding a quality content provider will enable you to communicate frequently with little time and effort on your part. If your broker/dealer offers client-approved materials, check to see if they match the tone and views you want to express; if not, look for a capable third-party provider.
Find articles that express your view, then point clients to them through hyperlinks.
Market crises are never easy for advisors or clients. However, as Winston Churchill once said, “never let a good crisis go to waste.” Communicating well in periods of extreme market stress is one of the best ways to grow client loyalty. Make the most of it by taking a proactive approach that reassures your clients and helps them stick to a plan of sound decision-making. It’s an investment that’s proven to pay off over time.
1 Winans, Kenneth. “Sure, It’s a Correction. History Shows They’re A Common Feature of Bull Markets.” Forbes. Feb. 9, 2018.
2 Kinniry Jr., Francis. Jaconetti, Colleen. DiJoseph, Michael. Zilbering, Yan. Bennyhoff, Donald. “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha®.” Vanguard. September 2016.
3 “The Value of Time: Quantifying how client focus increases the value of your business.” FP Transitions. 2016.
4 Kinniry, Jaconetti, DiJoseph, Zilbering, Bennyhoff.
The opinions expressed are not intended to be a forecast of future events, a guarantee of future results or investment advice.