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The stock market has to go down sometime. Although “buy the dip” strategy has been popular, one day the dip will turn into a Slinky toy, taking itself down step by step until it reaches the bottom of the staircase. The Slinky was been around since 1945 but regained popularity in the first Toy Story film in 1995. (Thank you Google!) What do you do when clients panic?
What panic? The last major stock market decline was in March 2020, during the COVID 19 pandemic. The S&P 500 declined about 34%. Before that, we had the 2008 Financial Crisis. Many people don’t remember them because the stock market has done rather will in the years that followed.
Psychological studies have shown that people derive more pain when losing money than the pleasure of gaining money. Your stocks might go up $100 and you think that’s nice, but if you were carrying a $100 bill in your wallet and suddenly it’s gone, the pain is a lot worse. Paper profits don’t become real until you sell the stock and close the trade. I’ve always liked the expression, “Money talks. It says goodbye.”
When the stock market becomes the shock market, here are several things you should do as a financial advisor.
1. Be in touch with your clients. Do not assume they will call if they are concerned. You want them to know you are on top of the situation.
2. Call at critical times. When do statements come out? Call them if it has been a bad month. Has the market had a very bad day? You might not call every client, but you know the ones that really need to hear from you.
3. Let them speak. They might be venting. They might be scared. They might want to talk about something they heard on a financial news channel. Give them the opportunity to speak first.
4. Be calm. They might be upset. They might be blaming you for not having seen this coming. (You did!) Don’t let this descend into an argument. Be empathetic. You know how they feel.
5. Provide perspective. They are upset. They are fearing the worst. Be ready to talk about their specific situation. Where are they now? Where were they at the start of the month? How are they doing year to date? They might be down in the last day or so, but still up year to date. You might highlight a couple of their separately managed accounts and how they have performed as a portfolio component.
6. Provide guidance. What do the strategists and analysts at your firm say? Were you on a live call this morning or is this written information? What can you share with your client that came be e-mailed? (There should be something that is Compliance approved.) Do they have separately managed accounts? Those managers likely have commentary that explains how they are managing each portfolio at this moment.
7. Focus on the long term. What do they own? What has changed? Are the fundamentals still intact? What does the firm think the US economy (or the world) will look like in five years. This involves major trends and investment themes. Are you positioned to take advantage?
8. Provide advice. No one can accurately predict the future. However, one of the advantages of working with a financial advisor is to become aware of opportunities others are missing. Are there areas where you think additional cash should be put to work? (It is very cool when clients can tell their friends they were buying when everyone else was selling.)
There are reasons for talking about asset allocation and rebalancing the portfolio. There are reasons to look at reducing margin exposure. At this moment, the client is likely started and frightened. They want to know you are on top of the situation and you are familiar with their holdings. Everyone wants to feel their situation is unique and they are getting proper attention. That is what you are delivering today. It all starts with calling them before they call you.
Related: How Competitors Lure Clients Away