What happens when the market has a big down day? Well, it had to happen eventually. The Germans have a saying “Trees don’t grow to the sky.” Nervous clients aren’t looking for platitudes. Now is the time to prove your value as their advisor. It’s a safe bet their roboadvisor is not calling.
1. Everyone gets a call
In the 1987 stock market crash, the DJIA fell by 508 points, which was 22.6% at the time. My branch manager said, “Get on the phone. Every client gets a call.” You want to get to them before they pick up the phone to call you. Your initiative lets them know you are paying attention.
2. Check the news
It’s been said the four most dangerous words on Wall Street are: “This time it’s different.” Still, better check just in case.
Is a giant meteor heading towards Earth? Have the Russians launched an amphibious landing in New Jersey? Has a rogue submarine fired nuclear missiles?
As a precaution, you want to make sure something hasn’t happened overnight that means “It’s the end of the world as we know it.”
3. What has likely triggered this sharp stock market decline?
The scariest declines are ones where there’s no logical reason. The May 6th, 2010 “flash crash” comes to mind. The DJIA dropped 998 points in 36 minutes, recovering most of the decline almost immediately.
In most cases, there’s a pretty obvious reason. The Greek debt crisis of 2015. The European debt crisis of 2008. Your client doesn’t want to hear: “We have no idea. This took everyone by surprise.” Be the informed expert if you can.
4. What does the firm say?
This is a major reason people invest with an advisor. There are floors of educated people at HQ, plus people on the ground around the world collecting and analyzing data. There will have been morning conference calls for advisors. Clients want to hear the firm’s advice.
5. What does the financial press say?
Publications like the Wall Street Journal likely have cover stories reporting the facts. Professional journalists usually report both sides of the story, allowing the reader to draw their own conclusions. Quoting a major publication puts a resource into your clients’ hands. They can access the story online or even run out and buy the paper.
6. Don’t sound panicky
The last thing a nervous investor wants to hear is the voice of another anxious person. They consider you a professional. They want to hear the voice of reason. Let them hear it.
7. Learn about heat maps
As you may know, heat maps show a visual representation of the market by sector and industry. You can see what’s going up and going down. Here’s an article with a few examples. Heat maps can help because you can see which sectors are leading the decline along with which ones are suffering less or even gaining. Share what you find and clients will realize you know how to look under the hood. Plus, you might find some good news.
8. Expect ‘How am I doing?’ questions
Clients are concerned about their holdings. Fortunately, today’s desktop terminals report pricing in almost real time. If they are diversified and have proper asset allocation, the news may not be as bad as they thought.
9. How long have sharp declines lasted?
We know past performance is no guarantee of future results, but we also know history has repeated itself. Find that chart (or data) showing stock market performance over time, including shocks to the market and what followed. You might remind clients that the market can turn on a dime and investors who miss the first couple of days of an upturn are at a disadvantage in terms of percentage performance returns.
10. Are money managers in place?
If you recommended a portfolio of individual stocks, you are “driving the bus.” They look to you for advice. If you have a portfolio of mutual funds and money managers, someone else is driving the bus. Let those managers do their job and manage.
11. Have company fundamentals changed?
You own certain stocks for a reason. If those stocks are down by 2%, 3% or 5% is it because company management is 2%, 3% or 5% dumber today? Probably not. How many years have those companies been in business? You might mention the company fundamentals, the reason you bought those stocks are still intact. The age of the company indicates if they have weathered volatile markets before.
12. What should we do?
The word “advisor” indicates you provide advice. Your client might want to “sell everything.” It’s their money, but you should be the voice of reason, the one seeing the big picture.
“Let the money managers do their job” might be good advice. If they have spare cash, adding on weakness is considered a time-honored strategy. You will most likely counsel them to not panic. They may not take your advice and commit more money, but they will remember you suggested it.
Ultimately, clients make their own decisions. When something scary happens, they need to know you are there. You are keeping current. You understand their situation. You have recommendations that are consistent with their situation. You are adding value.
One final thought: You should make another call when your clients’ monthly statement arrives in the mail!
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