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Experienced advisors know that turbulent market environments, including the current one, are ideal times for solidifying existing client relationships and fostering new ones.
On a very much related note, seasoned advisors know that their job often entails some elements of psychology. Meaning that in rocky market settings, clients are apt to need higher levels of personalized attention, hand-holding – nothing wrong with that – and service that extends beyond mere investment allocation and market discussions.
Some market experts also believe these are ideal times for advisors to engage clients and prospective clients in coveted younger demographics because these groups are very optimistic about investment returns, but many folks in these age ranges haven’t experienced a true bear market.
Consider the point that many of the oldest millennials entered the workforce leading up to, during or following the global financial crisis. More recently, younger generations – along with the rest of us – had to deal with the coronavirus bear market and the related economic headwinds. That was followed by a yet-to-be-completed era of rising interest rates and the worst inflation in 40 years –prior to the births of many millennials and all of Gen Z.
Advisors Plan of Attack
Advisors also know that in bumpy markets, it’s often two sets of clients that bear the brunt of the associated market jitters: Older investors, particularly those in or near retirement, and as noted above, younger market participants. That presents advisors with compelling opportunities for client engagement.
Regarding helping younger clients deal with less-than-ideal market circumstances, Brie Williams, State Street head of practice management, recommends a two-pronged approach.
“Discuss the concepts of risk aversion and loss aversion, and how these can bias decisions, to help strengthen their investment decision-making framework,” she notes. “Review risk budgeting concepts, like opportunity cost and risk-adjusted return, to support more intentional decision making.”
Obviously, some younger investors are given to impulse and can get easily frustrated in rough markets, potentially turning temporary mistakes into permanent ones. However, advisors can use these opportunities to prove mettle and add value by articulating to younger clients thoughtful decision-making that bolsters long-term objectives.
As for guiding older clients through turbulent times, psychology remains important, but the overall approach is different.
“Instead of trying to time the markets, consider creating an equity glide path that gradually reduces market risk as clients approach retirement or during their retirement years,” adds Williams. “Having a plan in place that is designed to achieve their financial goals — regardless of unexpected market volatility — can help clients feel more confident that they’ll have the money they need to enjoy their retirement when they need it.”
Making the Best of Rough Times
Neither advisors nor clients enjoy bear markets or even turbulent ones and both groups could go without clichés such as making lemonade out of lemons. Still, this is an ideal time for helping clients assess where they’re at in life, old and new financial goals and changes in risk tolerance.
“During stressed markets, you can help reorient clients to the long-term outcomes they sought to achieve in the first place. And review how well-positioned they are to reach those goals. The best time, however, to start educating clients about potential risks and how you can help is early in the relationship and before market volatility strikes,” concludes Williams.