Nothing is certain in this world, except for death, taxes and perhaps that when the markets go down and go down big, clients panic.  Calls flood into advisors with endless questions: Should they get out of the market? Is their nest egg is safe? How much money has their account lost? Don’t they pay you to protect their money?  While there are many ways to respond to the questions and concerns about why clients should think long-term regarding market movements, taking a wealth stewards approach can help you build trust even during market swings. How? Here are a few ideas:

• Downside Risk vs. Upside Opportunity. For the past few years, you may have been getting questions about why a client’s diversified portfolio isn’t going up as much as the S&P500 or any other non-diversified equity benchmark. The answer, of course, typically involves the amount of risk a portfolio is able to bear. During a market crash, it can be helpful to bring this back to the table. For example: “Remember when we discussed that you won’t gain as much in bull markets? The same is true in bear markets. The S&P 500 is down X%, but your portfolio is only down Y%.” A helpful report to demonstrate this example would be one showing upside and downside capture. 

• Stick to the Goal. Most clients invest in order to achieve a goal, such as market accumulation or spending, instead of trying to beat a single benchmark. While the market may be crashing, your client could very well be on track or within margin to achieve the goal. Remind them of this, and show them how they are still tracking towards their goal. While the market may be down in the short term, the time horizon to achieve their goal is (hopefully) still likely. A helpful report to demonstrate this example would be First Rate’s goal-based reports.

• Stick to the Why. Remind the client why they are investing. Generally, it isn’t to beat a benchmark, avoid ALL losses, or to take no risk. This can be helpful because their neighbor Bill (self-proclaimed expert investor) might be telling your client that he has shifted his portfolio tactically to avoid losses. Neighbor Bill could be investing with a very different objective than your client, and it is helpful to remind the client WHY they invested. Whether it is for long-term growth, income in retirement, or another goal, remind them of their goal and demonstrate how the short-term swings don’t impact their long-term strategy. Remind them that neighbors like Bill only tell them about his wins and not about his losses.

Have other ideas for how a wealth steward reacts to a market crash?  I’d love to hear them! Feel free to send them to me at [email protected]

Marshall Smith( EVP, Services )

Marshall Smith CIPM, EVP of Services, has been with First Rate since 2006. You can follow Marshall on Twitter @MarshallCSmith, or connect via LinkedIn.