Lessons from a week of highs and severe lows with clients

Now that the dust has settled, it's time to learn from the Brexit fallout on what to say and do next time markets tank and clients lose their cool.

Client reactions this week to the volatility sparked by last Friday’s Brexit vote offer advisers a glimpse into how investors may behave during a more sustained period of market decline in the future.

One lesson is clear: Advisers need a plan for what to say when a client panics in order to prevent them from making a detrimental emotional decision.

Last Friday, a 62-year-old client called financial adviser Kerrie Debbs practically hysterical. The woman was so freaked out that her individual retirement account investments would lose value that Ms. Debbs decided to sell a third of her European stocks in order to calm the client.

“She went through a bad divorce a year and a half ago and it left her skeptical of her safety and security,” said Ms. Debbs, a partner with Main Street Financial Solutions. “I listened to her and explained that her portfolio was designed to withstand this. Then I did something that gave her peace of mind and yet would not really hurt her.”

The vast majority of jittery clients were able to be soothed by their adviser without requiring the sale of an investment. Helping the client keep the market moves in perspective, letting them know their advisers are on top of the situation and sending these messages as early as possible are strategies that can appease panicky clients.

Inevitably, though, many conversations will begin with clients wondering if it’s time to sell.

A retiree emailed Matt Archer, partner at Archer Investment Management, at nearly midnight last Thursday, less than an hour after it was announced that the United Kingdom had voted to leave the European Union.
“Should I sell everything tomorrow?” the email read.

The client, who retired less than a year ago, was up late watching Bloomberg News on television with her husband, and the media was reporting that the surprising vote was a huge deal — an “end of the stock market,” kind of thing, Mr. Archer said.

(More: Help clients turn off the financial news spigot)
He responded to her email first thing in the morning and followed up with a phone call on the way into the office. In both communications, his message was that it would be a short downturn, and he reminded her that her financial plan had not changed at all.

In fact, the quick rebound the markets experienced — with the Dow Jones Industrial Average trading Friday at about the same spot it was before the Brexit news — will be a great lesson for clients to look back on to keep market-moving events in perspective.

As always, educating clients about potentially turbulent events ahead of time is a key strategy to keep their emotions in check.

One pre-retiree client of Roof Advisory Group called before the firm sent out its email to all clients Friday morning. He was worried that he didn’t know much about the Brexit issue and wondered if he should feel more worried than he was.

The adviser reassured him that the firm was aware of what was happening and was already looking for market opportunities, said Jeff Roof, president of Roof Advisory Group.

“He liked hearing that we were on top of things,” he said.

Advisers at RMB Capital made calls to those who tend to get nervous when markets roil and “unearthed clients who were really worried but hadn’t yet reached out to call us,” said Sarah Tims, a partner and senior wealth manager.

In some cases, Ms. Tims followed up again with those clients on Monday, making sure they weren’t thrown by a second day of declines.

(More: 10 things advisers are telling clients following Brexit)

Many clients also called their advisers over the last week wanting to know how exposed their portfolios were to European investments.

Those who asked Siller & Cohen Family Wealth learned that the firm sold 30% of its international equities the previous week.

“They appreciated that,” said Jeff Cohen, a partner.

Similarly, a retired widow who texted her adviser at ClearRock Capital concerned about her portfolio was less worried after learning about steps taken two weeks earlier to protect her investments. The firm had stop orders in place for her riskier equity positions that were triggered, said Jack Gilligan, director of research.

“She liked that idea so much, now she wants to put more on,” he said.