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Volatility Is Inevitable. Panic Isn’t. How Good Planning Calms Nervous Clients


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Written by: John Anderson | SEI

This article originally appeared on SEI’s Practically Speaking Blog

Last week, my family and I took a much needed, end-of-summer, before-the-start-of-school vacation to Colorado.  There was no cell service on the long hikes up the mountains and I certainly didn’t  pull out my phone to check email when I was at 9,800 feet with 360° views for 100 miles (Devil’s head lookout, check it out).  But, as Lloyd Bridges’ character said in the movie Airplane! “Looks like I picked the wrong time to give up {insert your punch line here}.

Although I was busy taking in the views during the day, I still saw the news at night, including the pictures of Wall Street traders looking concerned, frazzled and exasperated.  Has anyone ever noticed how silly those pictures look in the headlines and websites during market downturns?

What? No Panic?

It seemed like every day last week (and most of this week) we saw hundreds of point swings in the equity markets.  Down 300, down 400, up 600, down again 400, and so on—the indexes looked like a super ball thrown from a tall building.  And while the markets were bouncing up and down (and maybe still are) the best news is that it seemed that almost every advisor that I talked to during this week said their clients were not panicking.  There were no huge sell orders or “get me out of the market” phone calls.

Communication Prevents Anxiety

Maybe I have a limited circle of advisor contacts but to me, the best advisors had already fully prepared their clients for an event like this. Many already have plans in place to communicate with their clients during such an event.

Advisors have talked to me over and over this week about the importance of communication—not when markets become volatile, but proactively, before any such events happen. They also told me about their “contingency plans,” put in place for exactly these times.

Below I have listed some of my favorite ideas from advisors (and have added a few of my own). These are good practices to help you with your nervous Nellies.


Start with Your Plan

1. Prepare them for the inevitable:  If you have been in the business for more than a few weeks, you know that planning is the value hub of an advisor’s business, but the markets still can affect the outcome. You also know that in the long term the markets go up, but in the short term they can go down. You know it, and so should your clients.  Repeat it. Repeat it often.  Prepare them for sudden, violent corrections.  As Nick Murray calls them, do a “life boat drill” at every meeting.

2. When the crisis du jour hits, do your homework:  Understand the issues at hand.  Read as much as possible.  Don’t waste your time on the crackpot internet websites with conspiracy theory articles about the dollar being replaced as the standard currency or that we need to hoard ammunition and canned goods. Focus on market commentary from credible sources.  Look to your custodian, investment partners, broker dealer and specific money managers.  Be careful of confirmation bias—reading things that only confirm your already set opinion. Instead, be sure to educate yourself on what is going on from various perspectives.

3. Have a communication plan in place:  If you have segmented your clients correctly, you know who will need a little extra handholding. Think about creating a trigger communication plan. Maybe the trigger is a 200 point drop (or 600). Maybe it is based on a percentage of the market. Whatever it is, make sure you send out reassuring or “thinking of you” communications using their preferred method of communication, such as email, snail mail or phone calls (you should have captured that). Your nervous clients need a little extra attention to show them you are on top of things.

4. Scour the news from your partners and use it:  A lot of advisors have added me to their client mailing lists, so I have seen many great commentaries and advisor insights during the last week. But to me, taking the time to create, get compliance approval, and publish commentary will only delay your most important job—calming your clients.  Leverage what is out there.  I can’t tell you how many of the communications that I received included an SEI commentary (As if I didn’t read it already. OK, maybe I didn’t. Thanks for sending).

End with Their Plan

5. Review your goals-based planning and implementation: Over the years I have written about goals-based planning and implementation, not because I know a lot about the planning side of our business, but because I understand the people side of our business.  Quite simply, this is how people think.

A single portfolio that is designed to incorporate a client’s entire financial plan is impractical, because it forces the client to calculate the percentage of the portfolio needed for retirement, current income or stability.  Multiple portfolios using different risk tolerances and different asset implementation vehicles makes so much more sense to the client.  So take time to review the plan and progress to goals.

6. Focus on their plan, not the markets.  Let’s be honest, that is what they really care about.  “Am I going to be alright. Can I achieve my goals?”

I wrote a while back that there are two times when an advisor really earns his or her fee.  The first is when markets are really good, and clients need a reality check.  The second is when markets are really bad.
From what I have seen during this latest round of market volatility, advisors are earning their fees.  The question is, will they keep earning them?  Having a plan in place for times like this means advisors will be adding value to their clients’ financial lives for years to come.

Keep it up.

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