What did you do to communicate with your clients during the market downturn earlier this year? If you answered "nothing," or had to stop and think, you might want to reconsider your position.
While you may think you've educated your clients that "market downturns are inevitable, we can't time the markets and long-term investors should stay the course," you should not assume that a quiet phone means clients are not concerned about what they see on the evening news.
When the equity market news moves to the front page, clients can't help but become a little anxious. If you do nothing or simply continue to send out your regular client updates and quarterly reports (much of which is dated by the time they get it), your clients may wonder if you're asleep at the wheel.
While most of the media try to present an objective view, a headline writer's job is to catch attention, even if the intent is not to fan investor angst. Thus your clients are bombarded by headlines on the web, TV, radio and in print -- every day.
Smart advisors know that they must be proactive to mitigate the effects. Dan Richards, president of consulting firm Strategic Imperatives, says advisors should communicate with clients during equity market volatility.
"You must neutralize the most harmful aspects of the media and capitalize on the positive," he says. "The media sees its role as being skeptical and asking tough questions, serving as advocate for the public. It's hard to argue with that; where we have legitimate complaint is when they cross the line from skepticism to cynicism."
Headline NewsAccording to Richards, advisors should first try to immunize clients against the extreme headlines which market volatility seems to evoke. "Flu shots work by giving us mild exposure to the disease, thus helping us develop resistance to the real thing. The same principle applies in assisting clients ahead of time to heighten their immunity to alarmist headlines."
By showing clients headlines from the day following last January's Black Monday or the doom-and-gloom articles in the fall of 1998 (when the world financial system was supposed to collapse after the Russian ruble crisis and Long Term Capital Management's misadventures), you make it more likely they'll stay calm the next time they see similar coverage. "This won't eliminate concern entirely but it will lessen it," Richards says.
Julie Littlechild, president of research and consulting firm Advisor Impact, says regular communication eases client concerns. "Advisors shouldn't fear-monger. They just need to address what people are reading in the news. Clients are thinking about it, reading about it. We can't just pretend it's not happening," she says. "Not communicating regularly with your clients can be your downfall. When clients are afraid, they are more susceptible to outside influences. If you're not communicating with them, you can be darn sure someone else is."
Jordan Dechtman, financial advisor and owner of Jordan Dechtman Wealth Management in Centennial, Colo., believes that when the stock market takes a dive, you must immediately start communicating with your clients. During a recent conversation, a tired Dechtman explained that he'd been working long and hard the past few days in an effort to contact his best clients by phone and reach out to every single one of his clients by e-mail.
"It's natural for clients to be concerned when they see big drops because investing is emotional -- it's your hard-earned money," Dechtman said. "Investors often need reassurance that all will be well in the long-run. If they've got five years or more before they need to have access to their investments, the advice may be to do nothing because the market will come back. If they ride it out, their nest egg isn't in danger of being obliterated by the stock market; they have time on their side and we might even find some undervalued positions to add to their portfolio. But it's reassurance that they desperately need from their trusted financial advisor."
A top advisor with Securities America, Dechtman has $175 million in assets and about 400 clients. He believes that the best way to develop a communications strategy is to segment your clients, as he's done -- categories A through D, with As being his very best clients. While dedicated to providing quality service to all his clients, he wisely provides more personalized communication to his A list.
Andrew Samalin, a financial advisor in New York and owner of Samalin Investment Counsel, is adamant that advisors put themselves at risk if they are not proactive in their client communications -- especially when times are bad. "Our clients are bombarded by news 24/7. It's easy for them to get concerned or confused. We really earn our keep as advisors during times of uncertainty and with today's technology, there's no excuse not to be in touch with each and every one."
Plan AheadThe trick is to prepare ahead of time. Whatever your client-management software, client lists should be well-organized so that you can readily identify a specific group of clients to call, mail or e-mail in any given situation. You might flag the client record based on perceived emotional need. The list should be accessible to every member of your team. When something happens to trigger uncertainty with some clients, you should be one of the first people they hear from.
Donald J. Patrick, managing director at Atlanta-based Integrated Financial Group, a consortium of independent advisors, adds that the 24-hour news cycle has made the jobs of advisors more interesting. "We always make an effort to write a special piece if there is news that may concern our clients," says Patrick. "When the mortgage markets started to melt down, we disseminated a piece on the topic. We did the same after the 9/11 tragedy."
Patrick believes that clients appreciate some sort of communication. Although they may intuitively know what their advisor is going to tell them, it's good to hear it again anyway. "We all need reassurance at times and, these days, it is more important than ever."
The key to communicating effectively is to be proactive. "If you can beat the client to the punch, and call them first," says Patrick, "it goes a long way in making clients feel like you are as invested in their future as they are."
During the recent market downturn, Samalin sent clients a short e-mail inviting them to call him. The e-mail was a simple note acknowledging the market downturn, with an attached market review. A few clients did call. Samalin took the opportunity to explain the causes, effects and possible time frame of the recent volatility -- and reassured them that the strategy they'd developed was sound.
One recipient of Samalin's message was a previous client who had not moved with him when he left Wachovia to establish his own firm. She e-mailed back that the advisor who'd taken over her account had not been in touch with her -- not even once -- during the eight months that Samalin had been gone. She requested the paperwork so that she could begin an immediate transfer.
According to Patrick, the cure to a financial crisis is an adult memory. "Our years of experience tell us that this latest hiccup in the economy and capital markets will most likely end," he says.
Dechtman adds, "If you want to keep your relationship with clients strong, it's often as simple as talking to them and assuring them that everything is going to be alright. Like with any other relationship in your life, if you keep open lines of communication and do 'the little things,' that can mean a lot and your relationship will prosper."
Marie Swift is the president of Impact Communications, a marketing and communications firm for independent advisors; see www.impactcommunications.org