The questions advisers need to ask in bear markets

It’s now official. The 20% decline from the stock market’s intra-day, mid-February peak means we have crossed from the land of the bulls to the land of the bears.

While there’s nothing better for advisory practice business-building than an 11-year bull market, bear markets, and especially those that come on quickly like this one, are the true measure of an adviser’s worth. These are the times that define the value of the advisory relationship. Sound financial advice is always appreciated and recognized, but what’s critical now is for advisers to acknowledge and deal with the confusion and emotional pain that actual and potential monetary losses can cause. Achieving that means advisers must step up their client communications.

Of course, many advisers wonder what they should be saying in times like this. With so many unknowns — the severity and spread of COVID-19 and the degree to which it will affect business, government action and how markets will continue to react — it’s impossible to provide a clear picture of the future for either the economy or the value of clients’ investments.

But because the role of advisers and the services they provide have changed over the years, providing clients definitive answers to questions about market performance  is less important today than in the days of yore. With individuals now largely responsible for generating their own retirement income, most clients now want an adviser who is less of a market guru and more of a solution-provider for the issues that concern them most.

Some clients will ask if we will continue to see more stomach-churning daily drops (interspersed with a few strong upsurges). No one knows, of course. But the adverse economic effects of the coronavirus are likely to grow. If investors themselves turn bearish in their thinking, expect more stock prices to show up in red than in green.

Aside from that relatively small segment of the public for whom outstanding investment performance is the sole measure of an advisory relationship, most investors want an adviser who can help them define and progress toward their goals, manage risk, minimize taxes and select investments wisely to help them accomplish all that. A market downturn, even one that may turn out to be steep, doesn’t change what investors want from advisers. And it doesn’t change the broad range of questions and concerns clients have.

Particularly in times of stress, clients want to know:

- Will I have enough to retire?

- How much longer do I have to work?

- Will my children still be able to attend college or get the education they need?

- What happens if I get sick?

- Should I pay off debts first or continue to invest?

- Can I afford to help my elderly mother?

- Does it make more sense now to own a car or to lease a car?

- What about renting or buying a home?

These questions are on clients’ minds, and in clients’ minds questions related to money, investments, risk and family frequently overlap.

At times of market stress, clients may feel embarrassed discussing troubling issues with their advisers, especially if those issues are only indirectly related to investments. After all, if an adviser has never asked about a client’s debts, insurance coverage or the health of extended family members, how important to the adviser can those concerns be? Especially if an adviser’s background is product- or sales-focused, they may not be comfortable venturing too far from investment-related issues, perhaps as a result of feeling they have insufficient knowledge to be of help or because touching emotional hot buttons can be unsettling.

During this period of market turmoil, therefore, advisers need to not overthink what to say. The most effective way to communicate with clients is simply to ask what concerns them now, and then engage in a conversation that acknowledges those concerns and starts to address them.