Clients Getting Nervous About Another Year Of Volatility Ahead, Forcing Advisors To Get Proactive With Guidance

Wednesday, December 14, 2011 09:10
Clients Getting Nervous About Another Year Of Volatility Ahead, Forcing Advisors To Get Proactive With Guidance

Tags: client loyalty

Two out of three advisors now say their conversations with clients are dominated by how volatile the markets are. This is an opportunity to do more than hold investors' hands.


Russell's latest market sentiment poll discovered that 44% of investors are raising concerns about performance and risk. Both of these statistics are elevated, and they indicate a sense of frustration with conventional "stay the course" wisdom.


It has been one of the worst decades in market history and this year has been especially grueling as macro events nobody seems able to control -- the euro, the U.S. budget -- keep pounding sentiment.


A lot of advisors are content to simply explain these headlines away as irrelevant to a long-term financial plan.


But given the angst levels, it's critical to explain why the headlines don't matter -- and to double-check with your clients to make sure they don't matter.


If your portfolio construction maximizes the odds that your clients will be able to survive any thinkable market environment, tell them that. Lay out the worst realistic scenario and explore the ramifications.


Will the European economy shrink by 10% or so? What will that mean for the S&P 500? For Treasury debt?


The answers might not be beautiful, but the better you can pin down currently amorphous dread, the better you and your clients can plan ahead.


And if the answers scare your clients, that's not the end of the world. It's time to adjust their risk tolerance. Once that's been done, they know exactly how bad the headlines have to be to keep them up at night.



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Comments (2)

Great post, Scott. But advisors need to lead clients. Listen to them but don't allow clients to succumb to fears. I like what Fritz Meyer said yesterday: In a nutshell, Europe is scary but slowly moving toward a resolution. It must. And there are plenty of reasons to be optimistic about the US economy.
agluck , December 14, 2011
Thanks. I'm with you that advisors get paid to be the voice of reason: neither too greedy nor too fearful, but realistic.

I do think that there are two good approaches to a scared client and one especially bad one. An advisor can simply recognize that the client is just plain tired of it and so risk needs to scale back. They leave performance on the table but the client can go back to sleep.

The advisor can always make a compelling argument to get the client to realize he or she's overly fearful. That's what makes stuff like what Fritz has to offer so great, and that definitely adds value. But it's hard work.

The one way advisors definitely shoot themselves in the foot is by keeping the allocations where they are and dismissing the fear with something like "stay on course" or "because I said so." If you're keeping the allocations steady, tell them why and show them the Monte Carlo to support it. Then, if they say that's no longer safe enough, you know you have a problem.
ScottMartin , December 14, 2011

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