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March 13, 2020 at 05:08 PM
Calming anxious clients during a financial crisis is nothing new for financial advisors, but addressing that anxiety during a worldwide pandemic is something else entirely.
Not only have clients suffered severe losses in their equity portfolios — U.S. large-caps as of Friday’s close lost about 20% of their value in a little over three weeks — but many are under pressure from school and office closings and fears about their own health — pressures many advisors may also be experiencing.
“This dislocation is different from a lot of previous ones,” says Daniel Egan, director of behavioral finance and Investment at Betterment, noting that clients are also expressing stress and anxiety unrelated to the market.Egan was one of several behavioral experts participating in a webinar on Calming Anxious Clients About Coronavirus organized by blogger and XY Planning Network co-founder convened Michael Kitces. Here are some highlights.
When Your Client Calls
Start with expressing your empathy, acknowledging your client’s fears. “This is our job, being the release valve for other people’s uncertainty and anxiety,” said Carl Richards, a certified financial planner and author of “The Behavior Gap.” He suggested that advisors first thank their clients for calling, then pause, creating some space before responding. “Hold on while I grab your file,” or say some words to that effect.
Clients don’t want to hear facts and figures about what bear markets do or the bull markets that eventually follow, according to Richards. “That’s like talking to a smoker when he’s smoking about the problems of smoking,” says Richards. “It doesn’t go very well.”
Meghaan Lurtz, professor of practice at Kansas State University’s Institute of Personal Financial Planning and a senior research associate at Kitces.com, said advisors should repeat back what each client tells them and then ask the client to tell more.
That allows the advisor “to get to the why” of the call and “to answer in an individualized, more authentic way” even after they’ve received 25 or 50 calls from different clients, Lurtz said.
Kitces recalled a young client who lost about $10,000 in a rollover IRA during the 2001 market downturn. It was built from annual $2,000 contributions so the client didn’t view the loss as a dollar amount but as five years worth of savings.
Daniel Crosby, chief behavioral officer at Brinker Capital, who was previously a clinical psychologist, said it was important to not only listen to clients but also provide them with something at the end of the conversation so they feel that something was accomplished. It could be something to read, says Crosby, or some rebalancing or a change in their asset allocation, says Kitces.
Clients “need to walk away feeling they’ve been heard, they understand their financial plan and are confident about the person in charge of their plan,” Richards said.
Which Clients You Should Call
Egan of Betterment suggested that advisors think about which clients are the most important to reach out to during a crisis. “Keep track of everybody,” he said.
