Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Portfolio Construction

6 Steps to Calm Clients Who Want to Sell

Your article was successfully shared with the contacts you provided.

Clients are not only nervous about their health during the coronavirus pandemic, but also their portfolios. Shlomo Benartzi, professor of the Behavioral Decision-Making Group at the UCLA Anderson School of Management, recently gave a webinar that looked at how to handle panicked clients. Part of the presentation broke down into six steps how to deal with high-risk clients — those who are highly loss averse and are more likely to sell in times of market volatility. He recommended these actions:

1. Call high-risk clients first.

Benartzi admitted that his advisor hadn’t yet called him, and perhaps it’s because he wasn’t a panicky client. However, he saw that in 2008-2009, too often “advisors were afraid to call their clients,” and that is wrong as well.

2. Become an “app doctor.”

Help clients create an informational environment that is healthier. Many people check the market multiple times a day through phone apps, but they shouldn’t, “especially those who are well funded and have a long horizon,” he said.

3. Reframe the discussion.

“But given the environment, it’s hard to prevent people from looking. So frame discussions around opportunities to buy.” He said he’s not advocating market timing, but an advisor will have to rebalance a portfolio. Therefore, when the market goes down, an advisor can explain that they are buying stocks cheap. “Bring to life to the client on how we take opportunities to buy and sell,” he said. “It changes the discussion to ‘this is how much you lost’ to ‘this is the great [discounted stock] you’ll benefit from.’” Framing makes a huge difference, he said.

4. Give the big picture.

Don’t just look at one part, but review the full portfolio. For example, let’s say a client has a $1 million portfolio divided 60/40 and stocks drop 30%. Convert the entire amount into income, add Social Security at maximum level, and in doing all the math, the loss is just 9%. “How could this be if the market is down 30%? First of all, bonds aren’t down 30%, and we want the big picture. There is a reason why we build a portfolio as a mix of stocks and bonds … in fact, the portfolio was built in anticipation that market crashes can happen over the long term,” he said.

5. Focus on solutions.

Obviously, solutions adjust to the client. For the above example, someone just lost 9% of projected income, but if they work one year longer, they “generally can increase income by 7-10%,” Benartzi said. “That might be enough to overcome the gap.”

Or they could start putting 1% more of paycheck into savings each year. The other option is to reduce the income goal by 3%.

6) Reality check: Point out the tax implications of selling.

Most clients have capital gains already, and if they sell their stocks today they would have to “write a check to the IRS,” Benartzi said. “You can even calculate for them what the check would look like.” He adds that this might be a last resort.

— Related on ThinkAdvisor:


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.