An Individualized Approach During Times of Market Volatility

We stand at an unprecedented time in history. Over recent weeks, U.S. and global markets have been fluctuating wildly through negative and positive territory, seeing the worst trading days since 1987’s “Black Monday” crash. For many Americans, the constantly evolving news cycle can be difficult to swallow and therefore follow, leaving questions on how to maintain financial soundness and stability.

Proactive Communications

During these times of market volatility, it may seem easier for advisors to lay low in hopes that the situation will improve, but remaining quiet will only leave clients feeling uneasy. In a recent study by MDRT, more than half (55%) of clients said their relationships with financial advisors increase understanding of appropriate actions during times of volatility. During this instability, the state of the market can fluctuate on a daily basis. To keep up with the changes, it’s helpful to pull together regular reports so clients can see how their portfolios are doing in comparison with the broader market. In creating these reports, and sharing them with clients on an on-going basis, both you and your clients remain up-to-date.

In addition to regular performance reports, look for other opportunities to reach out to your clients. We often get caught up in the numbers and forget to offer the counsel and perspectives clients are looking for. You wouldn’t want to lose a client to a more vocal advisor simply because your efforts have remained quiet. By calling and emailing them regularly, your clients will see you’re paying attention to them individually. Newsletters can also be a great resource to provide groups of clients in similar situations with new information that may affect their portfolio.

When contacting clients throughout volatile times, you can also utilize materials provided by vendors and investment companies. These resources offer historical information on how individual portfolio components reacted during historical periods of fluctuating markets, giving clients a broader lens through which they can view the current times. For additional resources, take a look through the MDRT Resource Zone, which provides a variety of strategies to further address market volatility with clients.

A Personalized Approach

While best practices for interacting with clients during volatile times are universal, each portfolio is different and should be treated as such. Consider each account’s purpose and how soon the client plans to access their funds. If a client needs their reserves in the next few years, I try to be more conservative no matter the state of the market. For those who won’t be using their funds for more than 10 years, I tend to let them know they can probably afford to ride out the fluctuations, as the market will likely return to a positive state in the long term.

Each approach depends on a number of factors: the individual, their age, the purpose of their accounts and their risk tolerance. Taking stock of financial goals provides meaningful insight into advising individual clients; since each approach is personal, confirm financial goals haven’t changed. While many clients are willing to be more aggressive when markets are stronger, volatile times show where they actually stand when decisions are less straightforward.

Mitigating Client Concerns

Just as we must approach each portfolio differently, we must also take into account differences in decision making among clients. When markets drop even slightly, some of my clients call wanting to buy, while others call wanting to sell. Get to the root of these desires and talk through the various options. For those itching to sell, I often advise they make gradual reductions, rather than taking a more drastic approach. This prevents panic while still placing the client closer to the position they think they want to be in.

This is particularly appropriate when a diverse portfolio is already in place. Clients should consider not only a variety of stocks and bonds, but also varying companies, products, management styles and tax strategies. As each reacts differently to the same situation, clients can take a bigger picture approach to the market.

Looking Ahead

Particularly for newer advisors, doing research into historic market fluctuations can help you understand that trends—both positive and negative—can often last longer than expected. I witnessed this firsthand as a relatively new advisor during the low point of the 2008 financial crisis. After a steep market decline, I personally started getting more aggressive with some of my own money, only to find the numbers falling even further soon after. The lesson I learned was an important one: while maintaining optimism for the return of positive trends is important, it is equally crucial to consider the full scope of what is causing the downtrend, being realistic about how long the situation could potentially last.

The events we’re living in tend to feel as though they will last forever, but of course that is never the case. By working proactively and staying in contact with each client to provide regular, personalized information, we can much more easily ride out the storm as we wait for positive times to return.

Matt Hoesly CFP, ChFC, MSFS, AIF is a 12-year MDRT member with a focus in personal financial advice, corporate retirement benefits and asset management. By joining and engaging with industry peers via associations like NAILBA and MDRT, you can keep your skills at the top of their game.

Mr. Hoesly is an investment adviser representative with Resource 1, Inc. and a registered representative with Ceros Financial Services, Inc., Member FINRA/SIPC. Resource 1, Inc. and Ceros are not affiliated.

The information presented in this article is not intended to be a solicitation to buy or sell or to participate in any investment strategy. It should not be used as a substitute for individualized investment advice.