Clients want to know if they should make changes. Only a few probably need to, but all of them need your help in reaffirming their long-term plans.
Many reps are finding market turmoil is useful in reaffirming long-term strategies, as well as getting clients to make changes they've long resisted.
“Now is a good time to get clients in for a review of their portfolio and do some restructuring,” says Debbie Beaty, a Salomon Smith Barney broker in Indianapolis. “Before the market downturn, I couldn't get clients to move. Now we're doing a lot of portfolio restructuring.”
“Many of my clients have told me that they've stopped looking at their statements,” says Lee Edgcomb, a rep with A.G. Edwards in Rochester, N.Y. “That's a sure sign their anxiety level is building.” The anxiousness can be a good motivator to implement new strategies or adjust old ones, he says.
But more often than not, Edgcomb advises his clients to stay the course, reminding them of their original goals and long-term plans. “Our value is to defuse the emotions in a climate like this,” he says.
That's often easier said than done. “People are reactionary,” says George Bettersworth, a Morgan Stanley broker in San Jose, Calif. “They're programmed to believe you need to be doing something during traumatic market times.” But the fact is when a portfolio is set up correctly to begin with, you don't have to do anything, he says.
Bettersworth compares market turbulence with air travel. “When a ride gets bumpy, the pilot tells you to tighten your seat belt, sit tight and ride it out. Turbulence is part of the ride,” he says.
Brokers who preach reasonable expectations, risk tolerance and diversification say their clients generally tend to be less emotional and upset with chaotic markets. Edgar Stuart, a rep at Legg Mason in Nashville, Tenn., hasn't had to do a lot of handholding, but is nevertheless reminding clients of what they originally discussed regarding risk tolerance, asset allocation and time horizons.
“Times like this present a wonderful opportunity to express, as a caring, thoughtful broker, the helpful advice and reassurance your clients need to hear from you,” Stuart says.
Reteach Basic Lessons
The best way to handle investor concerns during a roller coaster market environment, reps say, is through education. Explain how the market works, showing statistics of past market downturns, and review long-term goals and risk tolerances.
“We've had a whole series of corrections in the stock market since the early ’50s, and we've always reached higher ground after the correction,” Bettersworth says.
Rick Balmaseda, a broker with Prudential Securities in Danbury, Conn., tells a similar story. “One of the best times to buy stocks is when the economy is doing poorly or is in the middle of a recession,” he says. “Unfortunately, that's counterintuitive. Most people only want to buy when prices are high and market conditions are good.”
After 10 years of a growing economy and a bull market, “We've been due for this,” Balmaseda says.
While acknowledging that this is an excellent time to invest, Bettersworth still cautions his clients not to overreact. He makes sure his clients look at both the upside and downside scenarios before moving money around. “If investors expect a big return, they have to understand they have to take a big risk,” he says.
Even when you set risk levels appropriately, you can't expect investors to be unemotional through market downturns. “There are always those individuals who need to vent from time to time, and that's OK,” says H.L. “Chappie” Chapman, a 25-year veteran broker with First Union Securities in Peoria, Ill. “My role as a financial adviser is to calm their fears and assure them that the sun will, in fact, rise tomorrow.”
Investors might not like the market upheaval, Chapman says, but they will get over it. “I've found that much like the baseball strike in 1993, when fans said they'd never go to another baseball game but came back in droves, investors will also return to the market. People have short-term memories.”
Tips on Handling Market Turbulence
Rick Balmaseda,
Prudential Securities, Danbury, Conn.:
Use asset allocation programs to diversify client portfolios by capitalization and style. Ask clients if they have other assets to be reinvested or rebalanced. “It is a difficult environment, but remaining positive and committed to giving good advice is where we add value. … A year ago people didn't need us; now they do.”
Avoid distracting conversations about issues such as whether the market has hit bottom. “That's not the question we should be asking. We should be asking if this is a good time to be buying stocks for the long haul, and it is.”
Lee Edgcomb,
A.G. Edwards, Rochester, N.Y.:
Talk to clients upfront regarding their expectations. Staying in touch — especially during tough markets — is essential.
Difficult markets also offer opportunities to discuss financial planning issues.
Rosie Anderson,
Edward Jones, Northbrook, Ill.:
Most people simply want to be kept informed about what's going on — they don't need a magic elixir. “At the first whiff of a market's downturn, call your clients. That alone will have a calming effect.”
George Bettersworth,
Morgan Stanley, San Jose, Calif.:
Some clients want to invest in beaten down sectors. Make sure they have an allocation model to match their risk tolerances, and then use dollar cost averaging. “I encourage them to invest a third [of their targeted allocation] now, a third in six months and a third in a year.” — M.G.
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