From the March 2008 issue of Investment Advisor • Subscribe!

You Never Write, You Never Call

In times of volatility and emotion run toward, not away from clients

An advisor calls a client and says, "Client, how are you?" "Not too good," says the client. "I've been very weak." The advisor says, "Why are you so weak?" Client says, "Because I haven't eaten in 38 days." The advisor says, "That's terrible. Why haven't you eaten in 38 days?" The client answers, "Because I didn't want my mouth to be filled with food if you should call."

...Bah-dump-bump

Even if you are under 80 years old and have never been to the Catskills, you probably have heard this joke, or some variation of it before. It is so old, and not laugh-out-loud funny. Why tell it? Two reasons: Volatility and Client retention.

Volatility is all around us and it's not only the markets that are volatile, your clients' moods may be as well. If they're a little emotional in this environment, who can blame them? On the day of this writing (February 5), we saw major drops immediately following a week in which we experienced a big rally. The Dow Jones Industrial Average (DJIA) plummeted 370 points, or 2.9%, its biggest one-day percentage drop in nearly a year. The Nasdaq fell 73 points, or 3.1%, and the S&P 500 dropped 44 points or 3.2%. This was the first time since January 2003 that all three indexes were simultaneously down more than 3.5% in a two-day period.

Based on my very unscientific study, the consensus was advisors experienced a feeling of pure nausea. One advisor, in his best (or worst...who could tell) Marlon Brando impression said, "It's time to go back to the mattresses." If you are not familiar with this expression, it is a reference to a famous line in the movie "The Godfather." In the classic Francis Ford Coppola film, it referred to a period of gang warfare, when the soldiers of the Corleone crime family would be "holed up" in various locations to concentrate their forces and changing their regular habits to avoid being "whacked."

For an advisor to have a temporary feeling of nausea may not really be harmful. It is more than understandable, considering this market is not fun. It has been one big, bad roller coaster ride and that can make anyone feel sick. But wanting to hide--that's not a good thing. Why would the advisor doing the Don Corleone impression--and unfortunately too many of his colleagues--want to hide? Because he sold, or perhaps oversold, performance as opposed to process.

Sell the Process, not the Performance

When performance is sold, the only thing that is guaranteed is that there are no guarantees. The underlying problem with selling performance is that you and your clients are psychologically unprepared for downturns like the ones we have been experiencing of late. You may blame the markets, but your clients are going to blame you when the market declines. You are betting your livelihood, and those of your clients, on something that neither of you have any control over.

Now, if you are reading this article you most likely are not one of the advisors heading to the mattresses, but you perhaps are still feeling that angst and some distress (perhaps even some nausea). I can tell you to relax--but that's much easier said than done. However, it may still be doable if your communication/education strategy is up to par.

It's important that you not only address what is happening now, but to have a consistent strategy that has been in effect throughout your relationship with the client, carrying through reviews and during other times of market madness. When expectations are regularly managed and communication is consistent, you and your client are more psychologically prepared for downturns. Thus, it makes it more tolerable to weather that downturn.

Therefore, it all comes down to your process. It must be repeatable, scalable and consistent. In the words of Warren Buffett: "To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight or inside information. What's needed is a sound intellectual framework for decisions and the ability to keep emotions from corroding that framework."

Now, obviously you cannot make hundreds of phone calls in one day--but you can send hundreds of e-mails. We suggest you draft a very concise, to the point e-mail for sending to your client base. It should state in a very matter of fact style that you recognize that short-term market fluctuations can cause long-term investors discomfort and you will be calling to follow-up with them in the next few days. If they do not feel the need for you to call them or if they want to schedule a specific time, ask them to reply back to your e-mail within the next 24 hours. Remind them as well that they can call you if they feel the need to urgently discuss what is happening in the markets prior to your scheduled call.

Once you have e-mailed your lists, make a pecking order for your phone calls. Every advisors' clients are different, but we suggest you call the New, Nervous, Narcissists and then Nice clients, respectively. (See "The 4Ns" sidebar)

Making the Calls

"New" comes first because you want to show them that you are reliable, accountable and predictable. Before you go into a market commentary--take a temperature check. You do not know how they may react to the downturn. They may be fine and no discussion will be needed. Or, they may have overstated, and you may have overrated, their risk tolerance. There is nothing like a fast market decline to expose the "real" risk tolerance of clients who may have talked bravely up until then.

"Nervous" would be next in line, because they are the first ones to abandon the principles of sound investing. Get the Nervous client talking and expressing (and hopefully letting go of) their fears. You need to uncover if their concerns are real or emotional. It is easy to get frustrated with these clients but make sure to empathize with how they are feeling. Try and put things in a proper historical perspective. For example, in the 11 recessions since the end of World War II, the market rose seven out of 11 times, with an average gain of 3.0%. The most recent recession--from March 2001 to November 2001--the S&P 500 Index plunged 12.7%. But in the three recessions before that, the S&P gained an average of 5%. If all else fails, talk about the New York Giants. The last time the Giants won the Super Bowl (that would be in 1990) oil prices were spiking, the banking system was in turmoil and the economy was heading into a recession. Sound familiar? But, if you look at what happened after that--you see one of the most robust growth periods in U.S. history.

The "Narcissists" would be third since these clients believe that they are your most important clients and want to make sure you are on the ball. Be prepared with your story and your point of view. Keep in mind though that while it is helpful and very interesting to look at what has happened over the last say 60 years, your clients will be looking to you for advice regarding what is going to happen over the next 90 days.

Lastly, are the Nice clients--these are the ones that you have strong relationships with, know that you have their best interests at heart; know that if you want them to take any action you will inform them. Remember, people have to hear things six to nine times before they actually learn them. So you may think you have done a great job educating them over the last two years--but they may need some additional reminders.

The advisor that has the ability to help their clients persevere through these periods are the true wealth managers.


Susan L. Hirshman, CFP, CPA, CFA, CLU, is a managing director for JPMorgan Asset Management in New York. In that position, she develops strategies to provide wealth solutions to the affluent market. She can be reached at susan.l.hirshman@jpmorgan.com.

Reprints Discuss this story
This is where the comments go.