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I often say in this space that advisors are not psychologists or therapists and while that assertion is accurate, there’s no getting around the fact clients can be emotional about their money and rightfully so. After all, it’s THEIR money and they earned it.
Point is investing can be emotional and cause stress, even when a client has ceded most or all of that control to an advisors. While many clients acknowledge they are not investing experts, hence they’re clients, they do consumer economic and political news, which can lead to increased angst regarding investment performance. That scenario is heightened because this is a presidential election year.
Call it behavioral coaching, expectation management or good old talk therapy, but the reality is advisors can play important roles in helping clients not let emotions get the better of them. That’s particularly true in uncertain times and that is the case today. If for no other reasons than that the election could be close and there are no guarantees the Federal Reserve’s upcoming interest rate cuts will have the desired positive effects.
Clients Have Different Forms of Jitters
In a recent note, Brie Williams, head of practice management at State Street Global Advisors (SSGA), makes a good point. That is that clients of different ages are likely to express angst or become emotional for different reasons.
Consider a hypothetical example in which a traditional bear market in equities comes to pass. A Gen Z client probably doesn’t know how to deal with that because they’ve never experienced it before. Conversely, a baby boomer is likely to get emotional about how that correction will affect their retirement plans.
“Whether investors see market downturns as opportunities to buy and hold or fall victim to chasing returns will likely depend on their advisor’s ability to steer them away from benchmark performance-focused discussions, and toward decision-making that supports their long-term goals,” notes Williams.
While the above is practical advice for an angst-ridden young client, advisors need to take different approaches with older clients that are close to or in retirement during market downturns. Much of that effort can center around two “P’s” – planning and perspective.
“Having a plan in place that is designed to achieve one’s financial goals — regardless of the market environment — can help investors feel more confident they’ll have the money they need to enjoy their retirement,” adds Williams.
Calming Clients Down Adds Value
Smart advisors know that there are myriad reasons why clients remain clients and why prospects become clients. Some of the reasons have emotional components to them. Said differently, talking clients off proverbial ledges is a value-add, albeit an underappreciated one.
“During stressed markets, advisors can play a crucial role in reorienting clients to the long-term outcomes they sought to achieve in the first place — and also review how well-positioned investors are to reach those goals,” concludes Williams. “The best time, however, to start educating investors about potential risks is early in the relationship and before a challenging market strikes.”
Bottom line: advisors know that financial markets don’t always behave in clients’ desired fashion. Setting expectations early on in the relationship and having the right plan in place can go a long way toward quelling jitters when turbulence arrives, which it eventually will.
Related: Advisors, Take Note: Women Are Concerned About Retirement