Helping clients manage volatility for the long run

Five ways to help your clients feel more confident about their plans and make the most of their time in the market

Aug 12, 2019 @ 10:39 am

By Graham Day

Since last September, we've seen the S&P 500 Index reach an all-time high, weather a 20% drop, gain it all back and keep on climbing. Financial professionals are accustomed to these ups and downs, but to an investor saving for retirement, a 20% swing in a seven-month span can be unnerving and confusing.

We do well to remind our clients that time in the market, not timing the market, is what matters in working toward successful retirement planning. Missing just the top 10 days over a 50-year span can cut returns significantly.

For example, the chart below shows that if you invested $10,000 in the market in 1969, you would have $1,069,385 by 2018 — 100x growth. But if you tried to time the market and missed those top 10 days, your initial $10,000 investment would have grown only half as much, to $515,684. Notably, seven of the 10 best days occurred within two weeks of the 10 worst days.

Returns of the S&P 500
Performance of a $10,000 investment between Jan 2, 1969 and Dec 31, 2018.
Seven of the best 10 days occurred within 2 weeks of the 10 worst days. The best day of 1997 — Oct 28 — was only 1 day after the worst day — Oct 27. The best day of 2011 — Aug 9 — was only 1 day after the worst day — Aug 8.
Source: J.P. Morgan Asset Management analysis using data from Bloomberg

Let's say you share an illustration like this with your client and counsel them on the value of patient investing, yet they're still on edge. What else can you do? Here are five ideas to help your clients feel more confident about their plans and make the most of their time in the market.

Start with communication. A colleague and his wife recently switched financial professionals, and the first question the new adviser asked them was not about their assets or goals. Instead it was, "How would you like us to communicate with you?" We have so many ways to communicate — meetings, seminars, email, conference calls — yet we may rarely ask clients about their preference. It seems simple, but it shapes the relationship. Regular communication helps clients stay informed — and invested based on their strategy.

(More: Solidify client relationships in volatile times by overcommunicating)

Optimize the client experience. Portfolio performance is always top of mind, but never underestimate the importance of the client experience — it's likely the No. 1 reason why investors stay with their financial professionals. The best financial professionals don't simply offer attractive investment options, they help clients set and achieve SMART goals — specific, measurable, attainable, relevant and timely. Consider overall financial needs when setting goals, including insurance, health care savings, education savings, retirement income, insulation from market volatility and longevity considerations.

(More: Is it better to meet with clients in person or online?)

Make the big picture bigger. Help your client think about progress holistically — moving beyond the performance of a single fund, sector or asset class. We have just passed the 10-year mark of the greatest bull market in history, and over the last decade investors didn't have much incentive to look beyond equities. But there is no one-size-fits-all solution; now is a good time to help clients make sure they are mitigating risk in terms of income, volatility, downside events and their tax burden.

Help them understand and evaluate alternatives to stock-centric portfolios, such as various types of annuities, bonds and real estate as appropriate to those SMART goals. Equipped with a solid plan, they may feel more confident during the inevitable bouts of market volatility.

Offer financial education. Would a bit of custom-tailored financial education help clients view the market more rationally? Even something that may seem fundamental could be of tremendous service.

Take statement reviews as an example. This is an area where someone might be a little reluctant or embarrassed to ask for help. But even a well-designed statement can be a challenge to read given all the information it can contain. So, walk them through it — they'll appreciate the guidance.

Strengthen relationships through client events. Simple can be meaningful here. More people are looking to give back to their communities these days, but they don't always have time or know where they can make a difference. Offer your clients an easy way to be a steward of their community through education or service, and deepen those client relationships while doing good things together.

After a record bull market, financial professionals have more value to offer than ever in helping clients think long term. Clients tend to remember and feel losses more than they do gains — and if their portfolio contains risk, that's where they'll focus.

So start an open dialogue and keep it going, optimize the overall client experience and give your clients the support they need to improve every aspect of their plan. You can both prosper over the long run.

(More: Calm in the storm: How advisers can combat emotional investing)

Graham Day is managing director of individual retirement at AXA Equitable Life.


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