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How to Talk to Your Clients About Market Volatility

Joshua Belfiore March 2, 2020

talking to clients about market volatility

Market volatility can be a nerve-racking experience for anyone. As most advisors know, clients tend to panic-sell during sell-offs, or at least attempt to panic-sell, which minimizes their participation when markets eventually rebound. This results in “sub-par” returns over time. Having spent 7+ years as an advisor at Merrill Lynch, I’ve seen this pattern of behavior again and again during market volatility.

Typically, as advisors, we try to alleviate client anxieties by explaining that market fluctuations are normal–they don’t move in straight lines. We explain that these fluctuations are an opportunity to add to attractive positions so that we take advantage of volatility rather than allow our portfolios to be victimized by it. We may even use some hindsight example like ’08 – ’09 to highlight that even in the most turbulent markets, portfolios recovered so long as clients stayed invested and could participate in the eventual rise.

But we should be asking ourselves: What else can we be doing?

Putting the Financial Plan in Perspective Combats Tunnel Vision

Each morning, I drive into work, usually arriving by 8:00 a.m. with meetings and calls starting at 8:30 a.m. My hour-long commute includes periodic bouts of “light” traffic, but occasionally it’s especially heavy, threatening to make me late or miss my early obligations. It’s in these moments that I find solace in Google Maps, and its real-time “arrival time” projections.

When I begin to feel anxious that traffic is going to derail something in my schedule, my “commute-advisor,” Google, more often than not reminds me that I’ll actually arrive in time. What it’s doing, importantly, is allowing me to connect the dots between my objective (to arrive in time for an 8:30 a.m. meeting) and my current position. With help from my “commute advisor,” I can see that despite what’s happening around me, I am still very much on track. Is wealth management any different?

We all get tunnel vision from time to time and, understandably, this is especially true for clients in turbulent markets. But whether commuter or client, there’s something to be said for focusing attention on the end game.

Financial Planning Techniques to Coach Clients Through Market Volatility

Bouts of volatility present an opportunity to reframe the conversation by placing “performance” in context, and remind clients that their objectives, which they came to you to address in the first place, may still be very much on track.

Rather than focusing exclusively on portfolio and individual security performance, pivot to metrics and planning techniques which take a longer term view:

  • Monte Carlo analysis: Utilize Monte Carlo and the hundreds of randomized market scenarios it produces to paint a picture of a client’s probability of success and how it may be unchanged or minimally changed despite recent events.
  • Goal funding: Focus on a client’s funding status to illuminate the extent to which her goals are still sufficiently funded.
  • End of analysis metrics: Highlight the client’s endgame. Illustrate the impacts, or lack thereof, to metrics like potential end wealth and the age your client’s assets last—this can reassure the client and help you prepare corrective actions if necessary.
  • Decision modeling: Rather than opting to liquidate assets, explore shifting resources from lower priority goals to higher priority goals to shore-up the probability of achieving what’s most meaningful to the client.

As wealth managers, we best speak to market volatility by helping clients connect the dots between portfolio activity, articulated client objectives, and the financial plan you’ve already created with them.

If you’re looking for more ways to help clients through tough market conditions, check out Advanced Planning in eMoney to see how you can demonstrate complex scenarios over the client’s entire financial lifecycle.

About the Author

Joshua Belfiore is a Senior Product Manager for Advanced Planning at eMoney. Formerly, he spent over seven years at Merrill Lynch as a financial advisor to institutions and high-net-worth families, including current and former executives of Fortune 100 companies. Joshua led the financial planning efforts for several private wealth teams, was a member of PIMCO's executive advisory board in his capacity as a Merrill Lynch financial advisor – focused on increasing synergies between wealth and asset managers - and frequently consulted with Bank of America Merrill Lynch leadership on driving innovations in wealth management. Joshua earned his undergraduate degree in Philosophy from Salve Regina University in Newport, RI, and is an active member of the alumni communities at Salve Regina as well as his high school alma mater, Canterbury School.

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2020 eMoney Summit - Power to the Plan

Discover new ways to transform your business, deliver value and generate successful outcomes. October 19-21.

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2020 eMoney Summit - Power to the Plan

Discover new ways to transform your business, deliver value and generate successful outcomes. October 19-21.

LEARN MORE

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Welcome to
Heart of Advice

a new source of expert insights for
financial professionals.

Get Started

Tips specific to the eMoney platform can be found in
the eMoney
application, under Help, eMoney Advisor Blog.