October has often been a difficult month for stock market investors. Getting through is like trying to get past Boardwalk and Park Place in the game Monopoly when another player has built hotels on them. Clients get upset when the market declines. They worry “this time it’s different.”
Why Is Your Client Scared?
Market declines are an opportunity to show your value as an advisor. A robo-advisor isn’t doing any hand holding. Self directed clients have only themselves to blame. No one wants that.
1. Sudden moves scare people. It’s been said the market goes up like an escalator and down like an elevator. This gets magnified by those helpful people on the financial news cable channels.
2. Points scare people. A drop on the Dow Jones industrial average measured in three digits is scary. They forget the Dow isn’t at 7,000, 14,000 or 21,000. It was up around 26,000 and setting new highs. The percentage decline may be lower, but the points get their attention.
3. They made other plans. The Dow bottomed out at 6,443 on March 6, 2009. Its been generally moving upward for nine years. It was 18,332 the day of the November 2016 election. On Oct. 3, 2018, it set new highs at 26,828, almost 8,500 points higher. Your client has assumed these dramatic gains would continue forever. Reality has intruded.
4. They’ve seen this movie before. The Dow was 14,164 on Oct. 11, 2007. Seventeen months later, it bottomed out at 6,443, a 54% decline. Your client thinks the new high we just hit was the start of the sequel.
5. They think the smart money bails early. You’ve preached “time in the market” vs. “timing the market.” They think the Wall Street pros get out early, leaving the investing public holding the bag.
6. They’ve got a know-it-all friend. Someone in their social circle is a Debbie Downer. They’ve continually predicted the good times can’t last forever. Yet even a broken clock is right twice a day. They believe their friend has predicted a drop in the market.
What Can You, the Advisor Do?
A lot of these points are obvious. You know them. Your clients should know them. Everyone needs to be reminded.
1. You call first. Don’t wait for their anxiety level to reach the point they pick up the phone. Do it first.
Rationale: You are letting them know they are an important client. You are on top of things.
2. We are all in this together. They invest. You invest. They had a bad day. You had a bad day. You feel their pain.
Rationale: You are not a smiling croupier taking away their chips. Their market losses didn’t move into your pocket. You are on the same side of the table.
3. Provide leadership. No one knows where the market is going. You can’t predict the future. You can reiterate the reasons why they own certain investments, the experience of money managers in previous market cycles and scenarios of what could happen next.
Rationale: This is the hand holding part. You aren’t saying “I have no clue what will happen next.” You are focusing them on factors in their favor. You are showing your value as an advisor.
4. What’s changed? This is the “goes down like an elevator” part of the conversation. A certain stock went down 3%. Did management become 3% dumber overnight? Did earnings go down overnight? No.