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Clients pay for advice. When something goes wrong, most people also want someone to blame. After all, don’t most James Bond movies have a supervillain responsible for the mayhem? When the stock market declines, some clients take it out on their financial advisor. How do you explain market declines aren’t your fault? Can you get them refocused on the long term?
Excuses Clients Hear
If you’ve been around for a while you’ve heard people say:
When clients have their money involved, they don’t want to hear about surprises or once in a lifetime events. It might sound logical to remind them since you aren’t the Fed Chairman or the President, but that comes across as an excuse too.
Getting Them Back on Track
Losing money is serious, especially to your clients. It took them a long time to accumulate the funds they entrusted to you. This must always be respected. Let’s assume you would like your client to stay on course and not panic. Here are a few approaches to consider.
1. We are all in this together. You are an investor too. You have money committed to the stock market. You are sitting tight for the following reasons (list a few). You advise them to do the same.
Logic: This should move you from being perceived as a croupier in a casino or middleman over to the category of fellow investor who is also feeling pain.
Concerns: Obviously you must be invested in the stock market personally. Your client’s investment objectives or timescale might be different. If you are both long term investors, you should be aligned pretty closely.
2. Buyers and sellers. When the market declines and someone sells stock because they think it’s not going any higher, there’s another person or institution buying it from them because they think getting in at this price is a good idea.
Logic: Do they want to give that other buyer the opportunity? If someone else thinks it’s a good idea to buy, then isn’t it a good idea to hold?
Concern: This is based on traditional logic and doesn’t account for computer driven trading programs that are getting in and out frequently.
3. Act or react? TV news can be scary. They talk about the stock market with a sense of urgency, especially when it declines. If you panic, you are reacting to the news.
Logic: You and your client should be looking for opportunities and acting.
4. Same company, same management, lower stock price. If a company’s stock is down 3%, this doesn’t mean management became 3% stupider overnight.
Logic: Assuming the company didn’t get disastrous news that caused the market decline, the reasons for originally busing the stock are probably intact. Should we buy more?
5. Money Managers. If you own a stock, the decision to get in and out is in the client’s (and the advisor’s) hands. When you use professional money managers or own a mutual fund, you have a team behind you who are logically making decisions on your behalf. Often the decision is to sit tight. It might be to buy on declines.
Logic: Someone else is driving the bus. Let them do their jobs.
6. Sector rotation. People think of “the stock market” as one index, like the S&P 500. The S&P is made of 11 sectors which comes into favor or go out of favor over time. For example, Schwab Sector Views (2) shows recent performance by sector.
Logic: Although you might think everything is declining at once, it’s often not to the same extent. This might provide clues which sectors are coming into favor or going out of favor.
Related: 10 Ways to Get Name Recognition with Prospects
7. Going out of business? They own an established, blue chip stock. The price has dropped. Are the fundamentals intact? Does your client really think, after 150 years in business, they are going to be closing their doors?
Logic: If the company has been around for a long time, they’ve weathered economic cycles before.
8. Housing bubble of 2006. After house prices peaked and started their decline during the subprime mortgage crisis (3), did they rush to sell their house? No, they probably thought of it as a long term investment and sat tight.
Logic: Clients should focus on their long term investment objectives.
What do these strategies have in common?
They take the client’s concerns seriously. No one wants to lose money if it can be avoided. They focus a client’s attention on the long term. They offer explanations based on reason, not excuses.