Client communication strategies for uncertain markets

We’ve recently seen financial media publish articles that directly contradict each other. Some outline the strengthening of the U.S. economy and the associated market reactions, while others outline rising debt levels and historically high P/E ratios alluding to future market declines. When you take into account current global political volatility, the one thing that is certain, for at least the near future, is uncertainty itself.

Periods of heightened market uncertainty are mirrored within advisory practices with an equally heightened need for client communication and transparency. During these times, your role as a trusted adviser becomes paramount as you face the challenges of mitigating clients fears and newly set expectations, while gauging your client’s satisfaction. This demanding act requires a new communications plan of attack.

Clients tend to leave their advisers due to gaps between investment expectations and performance — a common effect of uncertain markets. Too often a primary focus is placed on fees, ratings and relative performance. Yet, what severs ties between client and adviser is poor communication around the impacts of cyclical market gyrations on the portfolio.

(More: Got client passwords? That means custody to SEC)

Clarifying your investment process with front-end fact finding and reporting that speaks to your investment narrative will position the client/adviser relationship to weather the storm and achieve long-term success.

There are two key components to executing this type of communications strategy:

1. Understand the impact of market cycles on investment behavior;

2. Manage client expectations with investment clarity.

To help you better understand your clients’ behavior during changing markets, ask your clients these specific questions.

• During a long-term market cycle propose the following question: “Global markets, though volatile, have historically been great engines of long-term wealth creation. Should a portion of your portfolio be exposed to the returns and volatility associated with these markets?”

• When in a volatile market cycle ask: “Would you expect a portion of your portfolio to be actively managed during periods of market volatility?”

• In a declining market ask: “Should a portion of your portfolio be excluded from market movement during periods of market declines?”

(More: Want to provide a better client experience? Consult your clients)

Notice the tone in their responses. Do you hear a hesitancy or a strong sense of certainty? If you are meeting in person, make sure to take note of their body language. Did they shift in their seat and cross their arms or have they remained in the same, open position? Depending on your relationship, you could follow up with questions on your observations. You could ask as an open-ended question to spark a deeper conservation, “I sense that you are hesitant with that answer. Am I correct?”

Once you have a clear understanding of your client’s investment behavior, propose and deliver a portfolio that directly relates to investor expectations. The way you describe your portfolio strategy is key. During uncertain times, it is important to be straightforward and clear.

For example, when describing the three-mandate approach we implement in our portfolios, we simplify the descriptions of each without trivializing the investment methodology.

• Strategic market movement (Mandate 1) – Investments designed to capture the client’s need for long-term participation, closely correlated to the S&P 500.

• Tactical (Mandate 2) – Actively managed strategies that actively seek improved risk-adjusted returns as market cycles rise and fall.

• Diversifier (Mandate 3) – Investments that provide beta to the first two mandates, satisfying most investors’ desire for resistance to downward cycles.

(More: 8 social media etiquette mistakes firms should avoid)

A robust investment and communication process not only fulfills the spirit of the new fiduciary rule that may be implemented, but also creates a relationship that insulates you from both market cycle volatility and lackluster competitor focus. Simply put, there is an opportunity for you to differentiate with a unique value proposition that incorporates your client’s behavior and your portfolio strategy. Those that can tailor their story will be poised to deliver a competitive advantage that will last through these uncertain times and into a more certain future.

Gary Manguso is the vice president of product strategy at FTJ FundChoice, a turn key asset management program headquartered in Hebron, Ky.

Related Topics: Client Servicing