We talk to wealth managers about how they keep clients calm and focused during difficult market conditions – as is the case at the moment.

A big challenge for wealth managers is retaining clients and building loyal relationships amid volatile markets. An upcoming generation of younger adults is taking the reins of business and liquid assets from the older generation. 

We talked to wealth management firms about the challenge of achieving client loyalty and composure, in particular with BNY Mellon Wealth Management and Clarfeld Citizens Private Wealth. 

It is important to start with the “dos and don’ts" that advisors should be aware of in order to interact effectively with clients when markets are going down, as they have been this year.

“Don’t overpromise on market returns, don’t explain market conditions with technical language, and don’t overlook clients' perspective/emotions to market reactions. Don’t be defensive, don’t make excuses for underperformance, and don’t assure clients that everything will return to normal,” Stacie Kuhlman, Midwest regional president at BNY Mellon Wealth Management, said. 

“Be proactive in reaching out to clients, contact them before they contact you. Prioritize the client's concerns first and respond to each concern directly. It is important to have empathy, be transparent and own what you did well AND what you missed,” she continued. “Reassure clients that volatility is normal and expected in market cycles and highlight the importance of the diversification strategy and how it is built to withstand volatility.”

Matthew Ruffalo, head of investment solutions at Clarfeld Citizens Private Wealth, said: “It’s important to hear what your clients are saying during periods of heightened market volatility. Don’t have an agenda and instead advise clients based on their biggest personal concerns. Don’t hide from clients when markets take a turn for the worse. Your voice is imperative in challenging market cycles. It is necessary to provide context and reaffirm their current financial plan, strategy and corresponding investment portfolio.”

Choppy markets can be alarming, but a smart advisor should help encourage clients to see where there are opportunities.

“Volatile markets create an opportunity to reach out to clients to listen and to address their current concerns. It is also an opportunity to reaffirm their goals and rerun long-term cash flow models with current market values to demonstrate the probability of meeting their goals. We articulate that our modeling incorporates challenging markets and economic environments to ensure their goals can be achieved,” Kuhlman said. “Post-market recovery, it is equally as important to remind clients [about] the volatility the portfolio endured, the importance of clear and constant communication on liquidity needs, and our attention to detail through rough markets.”

Such a point raises the theme of behavioral finance – the approach that seeks to understand seemingly irrational human conduct in markets and how to avoid making mistakes. 

“Understanding behavioral finance, separating emotion from fact, and asking the right questions from the very first meeting with a prospective client is essential to a long and successful client-advisor relationship,” Kuhlman said. “As an advisor, filling in the gaps on where the client might have blind spots due to prior experiences with investing or financial planning, is key and a true differentiator in our industry. A great example is that some of the best times to buy into the market are when confidence is at an all-time low. This behavior can feel counterintuitive but educating clients to invest like an institution and not like a retail consumer can improve performance,” she said.

Ruffalo said clients’ risk appetites may need to be reassessed.

“Use periods of elevated market volatility as an opportunity to revisit a client's risk tolerance. Ability and willingness to take risk are two very different notions. Just because a client's balance sheet may support a riskier investment allocation doesn’t mean it’s appropriate. See how your client is dealing with challenging market conditions and resulting portfolio losses. Are they able to stomach unrealized losses? If the portfolio reaction is eliciting severe anxiety, disruption to their daily life or loss of sleep, a reassessment of the risk level of the portfolio is warranted. Investors may have a very different relationship with risk in positive market environments in contrast to market drawdowns,” he said.

“Market volatility is normal. Most investors are subject to recency bias and periods of low volatility or directionally positive markets that influence incorrect assumptions. Guide clients to longer-term market returns, historical averages as well as highlighting other periods of market volatility and corresponding recoveries,” Ruffalo continued. “Market volatility can take many shapes and forms and often occurs from differing factors: geopolitical risk, fiscal and monetary policy changes, heightened valuations, interest rate shifts, economic growth or contraction, business cycle changes, corporate earnings activity – to name a few. Make sure clients understand what’s impacting the market, how it relates to their portfolio investments and offer affirmation of the approach amidst volatility.”

How technology can help
“Giving clients the ability to view their balance sheet and their long-term cash flow plan with current market values is imperative during market turmoil. Clients also appreciate the ability to run multiple scenarios (retirement, spending, gifting, etc.). This can set a client’s mind at ease during challenging markets, preventing them from making irrational decisions or adjustments to their long-term plan. In both cases, our advice is needed,” Kuhlman said. 

“In a down market, technology can forewarn a client if they utilize leverage and their depressed collateral values might trigger a margin call. Allowing clients time to adjust their collateral or borrowing capacity well before a potential default maintains a strong relationship. Lastly, leveraging technology to provide clients access to on-demand content in varying communication mediums (podcasts, recording, webcasts) is tremendously valuable with clients’ busy lifestyles,” she added. 

Family Wealth Report is keen to find out from other firms about their approach to these issues. Contact the editor at tom.burroughes@wealthbriefing.com