Written by: Ken Haman
What a difference a decade makes! Advisors are talking about the difficulty of working with distressed clients. Some say, “This is a challenging time, but not nearly as tough as the Global Financial Crisis.” But even more advisors are saying, “This isn’t the same as the last correction. I’m not sure how to help my clients.”
These two very different comments are worth exploring.
Where Were You When…?
The advisors who are finding today’s market less difficult survived the Global Financial Crisis. Many even worked through the 2000–2002 crashes.
These advisors have experienced clients struggling to cope with painful losses and long periods of uncertainty. Remember, between March 2000 and October 2002, there were two corrections of more than 30%. In the first correction, it took 546 days for investments to recover; in the second, it took 278 days to recover.
The Global Financial Crisis started just five years later with a nearly 52% negative correction that took 408 days to recover. That’s three major corrections in seven years. These long, grinding periods of pain and uncertainty taught advisors how to work effectively with distressed clients. Advisors who survived and prospered during these periods developed a great deal of resilience and a tremendous appreciation for the fragility of client relationships.
Not All Advisors Have Had the Same Experience
But what about the advisors who are saying, “It’s really different this time. I’m not sure how to help my clients with these markets”?
After deeper discussions, I discovered that these advisors do not have the same kind of learning experiences as the more seasoned advisors because they weren’t in the same role 14 years ago. Many have significantly accelerated their careers since then. Some have developed from a junior advisor. Others have bought practices. Some have built large books of business. Even if they were working during the Tech Wreck of 2000–2002 or the Global Financial Crisis, they didn’t have the same burden of responsibility and level of seniority they have today. This leaves a gap in their skill set.
Markets have been remarkably benign since 2009. We’ve had only one correction greater than 20% since then—a nearly 34% correction in February and March 2020 that lasted a mere 33 days. By the time clients were aware that the markets had become volatile, they had recovered most of their losses. In a sense, that correction wasn’t even an “experience” for clients or advisors. Advisors had barely started to reach out to clients to provide support before the event was over and markets returned to their (surprisingly) positive performance.
There is a vast difference between the experience of an advisor who helped clients through a 52% correction that took more than a year to recover and the experience of an advisor whose greatest client-management challenge wasn’t actually a challenge at all.
This dichotomy means that some advisors have a personal context in which to view the current correction, fears of recession and emotionally volatile clients, while others do not. Without those earlier learning experiences, today’s challenging markets represent an unprecedented relationship-management challenge for advisors who are bearing the full burden of being the trusted advisor to frightened and potentially impulsive clients.
Resources for Working with Distressed Clients
AllianceBernstein Advisor Institute programs have been integrating the learning experiences from supporting retail financial advisors since 1993. Over three decades, we have formalized practical guidance for how to respond to clients during difficult times. Even seasoned advisors can benefit from these resources:
Managing the Hard Conversation: Working with Emotional Clients
Based on insights from the behavioral sciences, this highly practical program provides a simple four-step conversation model for engaging highly emotional clients and helping them restore a more rational and resourceful state of mind.
Client Relationship Year-End Checklist
This 28-item checklist helps an advisor build trust, demonstrate professional competency and restore confidence in an anxious client. The checklist ensures that the advisor is considering all of the areas of the investment process, financial plan and wealth-management issues that the client may have concerns about.
A Practice-Management “Go Bag”: Why It Should Be on Every Advisor’s Desk
Register for our November practice-management webcast, which explores a five-step model for preparing for a correction that could potentially last longer than a year. Borrowing on insights from the behavioral sciences and research into the human response to disaster preparedness, the program provides practical guidance for how to prepare yourself, your family, your team, your clients and your organization for a challenging period.