Keep clients in the loop about market realities

Financial advisers have a responsibility to prepare clients for market realities

Sep 21, 2019 @ 6:00 am

By Jeff Benjamin

Nobody ever really wants to be the bearer of bad news, but financial advisers have a responsibility to prepare clients for the reality that economies move in cycles and markets don't just climb.

For a lot of clients, and even some financial advisers, an economic recession and extended bear market for stocks would be brand-new territory, which is all the more reason to ramp up client communications now and expect to do a lot of hand-holding when things get rough.

"There's a whole generation of investors and advisers who don't know anything but secular gains," said David Canter, head of the RIA segment at Fidelity Clearing & Custody Solutions.

"The communication piece is key," he added. "The whole value of an adviser to the end client is creating a plan and keeping them on course."

Mike Lover, vice president of strategic business development at ETrade Advisor Services, said advisers shouldn't just plan to increase client communications in an economic downturn but should also put together a plan for addressing key points.

"Develop several talking points to think about how to address market events, and what's causing them," he said. "This can even be an entry point to discuss things like tax-loss harvesting."

It's important to acknowledge investor concerns and to remind them of their longer-term goals and plans, but also to emphasize progress their investments have made, Mr. Lover said. Show clients the value of sticking to a plan and not reacting out of fear.


For example, for calendar-year periods from 1926 through 2018, the S&P 500 Index was negative 27% of the time. But when expanded to five-year holding periods over the same 92-year period, the S&P produced negative returns just 13% of the time, according to an August ETrade analysis.

In fact, when applied to 10-year holding periods, the S&P returns were never negative. Additionally, over the 20-year period through 2017, the S&P produced an annualized return of 7.2%, while the average equity investor gained just 5.29%, illustrating that sitting tight is often the best strategy, the ETrade white paper found.

Saumen Chattopadhyay, senior vice president on the investment platform at Carson Wealth, said his more than two decades of financial services experience taught him that investors often feel like they are taking on too much market risk during periods of economic downturn.

Make sure clients know the risk in their portfolios and are familiar with their asset allocation, he said.

"Going back to 2008, I remember people who complained about the volatility because their risk allocation did not align with their portfolio," Mr. Chattopadhyay said.

Assuming portfolio allocations are in line with investor expectations and risk-tolerance levels, it is impossible to overcommunicate with clients during a recessionary period, said John Traynor, chief investment officer at People's United Advisors.

[Recommended video: Financial planning wasn't even a thing 50 years ago]

"Focus on hugging your customers a lot," he said, describing "hugs" as communications, which he said should be varied and creative.

"We're changing and expanding the way we communicate with clients," Mr. Traynor said. "We set up video snippets for people who don't have time to read through a 12-page outlook. And we're also setting up a studio for topical commentaries that can be done quickly when something happens."

[Our final Women Adviser Summit of 2019 will be held in New York City. Register now.]


What do you think?

View comments

Recommended next


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print