When markets are volatile, it’s challenging to calm clients and protect their portfolios.
So, CIBC Wood Gundy portfolio manager Stan Tepner asked business-building expert Grant Shorten about the best way to help clients who are uncomfortable with volatility.
Shorten, director of strategic insights with Renaissance Investments, responded by outlining a three-step process advisors can use with clients.
Q: Clients are asking me about the ups and downs of the market. How do you recommend I talk to clients about volatility?
A: We can all agree that we’re living and operating in volatile times. So, how do we handle it when a client comes to us and says, “I can’t take these sell-offs anymore. I need to make a change, and I need to make it now”?
Well, any time we’re confronted with a client who is experiencing worry, anxiety, panic or fear, remember that human nature is the greatest enemy to successful investing.
That’s the case because human nature can have us jumping in and out of markets, and can have us trying to time markets. If we’re left to our own emotional and psychological devices, we tend to run away from negative returns after they happen—even after much of the damage has been done to our portfolios.
The good news is advisor guidance can help. And, the more we can simplify our discussions around volatility, the easier it will be to use a methodical approach with clients who are dealing with market ups and downs.
Here’s a simple three-step process that will help clients who are concerned about volatility.
Step 1: Identify, align and agree with clients
I’m talking about identifying with your client, at least for the moment. It’s essential to maintain strong rapport with your client, especially when they’re worried, anxious or panicked.
So, if a client comes to you and says, “I need to make a change and I need to make it now,” you can respond by saying, “I can identify with how you feel, because a lot of people are feeling that way right now.”
Step 2: Help clients identify and address their current mindsets
The easiest way to educate your client and readjust their expectations is to incorporate historical evidence and compelling visuals into your client conversations and reviews. As part of this step, start by suggesting you take a closer look at the nature of the stock market together to help them gain perspective.
There are many charts and graphs available that show the long-term history of bull versus bear markets, for example. These illustrate that bull markets have consistently been substantially longer and stronger than bear markets, and you then have the chance to remind people that markets always move in a series of rallies and corrections.
And, you can tell them that to take advantage of wealth-building opportunities, they need to be invested and willing to experience some periods of volatility.
Step 3: Make specific recommendations
When speaking to a worried investor, you can say something like, “I want to remind you that your portfolio has been built using prudent asset allocation principles, and it’s designed to minimize risk during volatile times.
“So, in light of what we discussed today, I’m recommending we stay the course in order to be there for the opportunity to grow your wealth and to prepare you for retirement.”
For more on client communication, read: