Monday, Aug. 24, 2015, will be remembered as the day that the Dow dropped more than 1,000 points and the Standard and Poor’s index closed in a correction. Stock markets rallied early Tuesday only to disappoint in the final hour.
On volatile days like these, the temptation to throw in the towel is very real. Experienced advisors have been here before. Talking panicked clients off the ledge is part of the job description. The key for experienced and young advisors alike is to avoid panic in the first place. My job as an expert in risk tolerance and strategist for FinaMetrica is to explain how.
Here are the 3 things advisors can do to help clients avoid panic:
1. Know Your Clients. Risk tolerance dictates an investor’s willingness to take risk. Subsequently, it also helps determine the level of losses that they can conceivably suffer without panicking. People are different, and some are better equipped to cope with their emotions than others. A psychometric risk tolerance test will enable you to assess and scientifically quantify your clients’ risk tolerance, giving you the ability to see how your clients compare. But it can’t stop there. You have to be able to talk to your clients about risk. A well-constructed risk profile report will facilitate the conversation in a thoughtful and consistent manner. Learning and talking about what keeps your clients up at night are keys to strong, enduring and fruitful relationships.