Why client coaching can’t be left for corrections

By Mark Burgess | March 16, 2018 | Last updated on March 16, 2018
4 min read

When markets plummeted on Feb. 5, marking the beginning of what many considered an overdue correction, several advisors took to Twitter to offer reassurance and perspective on how the drop fits into a larger picture of rising markets.

Absent from that day’s economic commentary was U.S. President Donald Trump. After months of taking credit for the stock market’s tremendous gains—on Twitter, at rallies, in his State of the Union address the week prior—the president had left himself little room to weave the Dow Jones Industrial Average’s largest single-day drop into his economic narrative, even though the fundamentals of that narrative were unchanged.

Hopefully most of you weren’t similarly silent. When Advisor’s Edge asked the industry on Feb. 6 about the response advisors were receiving from clients, we found relative calm. Phones weren’t ringing off the hook. Demand wasn’t spiking (as it was for some overwhelmed robos that crashed under the volume). For advisors who hadn’t been taking Trump-like credit for clients’ plum returns over the previous months, the day didn’t feel extraordinary.

Instead, the February correction was a useful check against complacency, and in favour of both humility and client coaching through the good times. After years of outsized returns, advisors who positioned returns in their proper context had less occasion to search for cover when those gains were erased.

It was also an opportunity to provide a human touch. Some have wondered how robos would handle a correction, and how new investors would respond without someone guiding them through the turmoil.

That human guidance can take various forms. Some advisors we talked to described a proactive approach: calling clients they knew would be concerned, or sending out communiqués explaining the drop and the favourable economic conditions that persisted in spite of it.

As market observers noted, there wasn’t one neat reason for the correction in February. So it also presented the challenge of comforting clients and explaining the drop without oversimplifying events.

Doing so is particularly important when it comes to young investors. Some advisors we talked to described clients who had experienced the crash of 2008 and then saw markets practically double since. For clients who had either just started investing or were old enough to witness the trauma without actually having skin in the game, the financial crisis of 2008 informs their view of investing in a foundational way.

This association is compounded by an economy where freelance work is more common and traditional savings tools, like DB pensions, are artifacts of a prior generation. For most new investors, stocks will be an essential part of retirement planning.

All this means selling millennials on an equities strategy and keeping them invested is challenging. Any brand manager will tell you that younger generations, after growing up exposed to more participatory forms of media, have sharp B.S. detectors: they’re more likely to appreciate candour than a sales pitch. So talking to new investors about the return of volatility in a way that doesn’t gloss over the contradictions is especially important.

Doing so with clarity, patience and even empathy also matters. Another set of tweets just before conventional markets plunged in February highlighted the question of tone when dealing with younger investors. Michael Kitces of the Nerd’s Eye View blog appealed on Feb. 2 for advisors to “show some empathy for those experiencing REAL losses as Bitcoin crashes.” The response to his plea for compassion was mostly cynical and full of schadenfreude, but Kitces persisted, warning of a traumatized generation at risk of eschewing investing altogether. “They may have been wrong,” he wrote, “but belittling them about it and kicking them while they’re down means they will NEVER want to work with us.”

It all comes back to the coaching advisors described when we called them in early February. The important work had been taking place for months, as they reminded clients that these weren’t normal times. That stocks repeatedly closing at record highs wasn’t going to continue. That a world of 1% interest rates wouldn’t last forever. That volatility would eventually return. That “the market is not their portfolio,” as one advisor put it.

That kind of conversation makes it far easier to explain the benefits of staying invested during a correction, even if neatly explaining the causes of that correction isn’t possible. It’s a much better position to be in than settling for silence filled only with the echoes of ill-advised boasts.

Mark Burgess is managing editor of Advisor’s Edge. Email him at mark.burgess@tc.tc.

Mark Burgess headshot

Mark Burgess

Mark was the managing editor of Advisor.ca from 2017 to 2024.