Coaching Clients in Times of Crisis

Commentary May 06, 2020 at 11:06 AM
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Coaching a client through the coronavirus market crisis (Photo: Shutterstock)

As the COVID-19 pandemic disrupts business, the U.S. economy and global markets, financial advisors are under immense pressure to help their clients avoid making rash decisions based on fear, while staying focused on the long term.

The pandemic is ushering in significant changes in supply chains, industries, governments, global systems and human life globally. Some of these changes will be challenging, while others will provide opportunities to perform remarkable acts of invention, contribution and leadership. Regardless of how things unfold, as with economic crises of the past, this too shall pass.

As advisors coach clients through the market turmoil, they should use this moment as an opportunity to help clients discover their ultimate purpose for money, overcome the cognitive and emotional biases that may interfere with achieving that purpose, and stay true to the financial principles they need to employ to get there.

Coaching vs. Counseling

Helping clients stay calm as markets roil is an essential part of being a financial advisor, but the real way to differentiate your service is to give clients a framework in which to be calm. The COVID-19 situation is different from past crises because it touches not only investment portfolios, but all aspects of clients' lives. The ground has shifted dramatically, so the advising model you've used in the past may be inadequate or counterproductive today.

Right now, many investors feel pressure to get out of the market entirely, a rash decision that will cost them dearly when the market recovers. At a time like this, addressing clients' needs requires more work than simply telling them to "stay the course." Clients must understand the unconscious biases that drive their decision-making, their reactions to fear and stress, and how what they think they know about investing can actually be detrimental to their long-term portfolio health.

Advisors who act merely as counselors are not doing enough; investors need coaches right now. Coaches guide and empower, giving clients the ability to understand themselves and the principles behind their investments. A good coach energizes their charges to go the distance — and this is our role as advisors. This is our Olympics, and it is our job to get our clients to the gold.

Looking Into the Human Psyche

In his book "Behavioral Finance: The Second Generation," Professor Meir Statman discusses the cognitive and emotional shortcuts we make when investing, the reliance on which can "take normal people far from their best choices, solutions, and answers."

During this uncertain time, investors are being bombarded with messages of Armageddon, both externally from the media and internally from their own natural instincts. Just look at what's happened to the market over the past month and we can see Statman's theory in devastating practice: With just a touch of fear, our deeply ingrained cognitive and emotional biases make us do impetuous, unpredictable things, which ultimately go against our better interests.

From hindsight bias, which makes otherwise sensible people feel that events in the past were more predictable than they actually were, to confirmation bias, which makes us pay attention only to news and information that confirms what we already believe to be true, investors' natural instincts are currently pushing them to make the wrong decisions.

These biases are always a hindrance, but in times of market volatility, they become a serious liability for both investors and advisors. Acting out of panic right now could leave vulnerable investors without a nest egg, without the means to send their children to college, retire or fulfill their lifelong dreams.

Just as the coaches of Olympic athletes push their charges to keep their goals in mind while training, so must financial advisors now lead by reminding clients of their true financial purpose. Investors who have a purpose for their money — be it retirement, leaving a legacy for their children or through charitable initiatives — will find it much easier to set aside their fear and anxiety and follow their advisor in looking toward the future.

Understanding the Unpredictable Nature of the Markets

How can advisors combat their clients' hardwired biases? During these turbulent times, it's important to walk clients through the academic principles behind their portfolio construction. Consistent coaching is key, but so is having a strong investment philosophy to fall back on.

According to the Efficient Market Hypothesis, everything currently known about the market is already baked into the prices. While investors may believe it's possible to outperform the market by picking the right stocks at the right time, advisors need to help clients understand that stock picking, market timing and track-record investing is the Wall Street equivalent of gambling with their money.

The cold, hard truth? No one can predict the markets. While building diversified portfolios based on principles such as the Efficient Market Hypothesis, Three-Factor Investing and Modern Portfolio Theory and taking the time to rebalance may not be as sexy or exciting as trying to pick the next winning stock, it's essential for advisors to stick to their guns and encourage their clients to do the same.

Things are going to be upside down for a while, but we can see a path forward by looking at the past. Historically — be it the housing crisis, the tech crash or the '87 market crash — it takes an average of 111 days for the market to fully recover from a hit, and low GDP growth does not predict low future stock returns.

As we move through the upcoming weeks and months, communication is key. Coach your clients by providing a framework that will help them understand their own emotions, biases and true financial purpose — along with your core investing principles. Educate them on why relying on market timing, track-record investing and stock picking is a losing game and help shift their focus away from the daily gyrations of the market and toward the long term.

In the midst of the pandemic, advisors play a critical role in helping clients understand they have more control than they think they do.


Mark Matson, founder and CEO, Matson MoneyMark Matson is the founder and CEO of Matson Money, a wealth management and advisor coaching firm based in Scottsdale, Arizona. Matson Money works with 541 advisors and 33,000 investors across the U.S. 

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