5 minute read
Stock market volatility can be scary. This means that as investment advisors, our job is to journey with our clients through stock market investing and its accompanying volatility.
How does one guide clients through intimidating volatility? By following a simple formula that starts with acknowledgement, followed by empathy and reassurance. Read on to learn how this technique soothes client concerns over volatility from stock market investing.
Navigating Stock Market Investing: 3 Steps to Gear Your Advisor Clients for Volatility
Step 1: Acknowledge & Validate Your Clients’ Feelings
Your clients’ fears of investing are very real to them. After all, they believe their life savings are at stake. As advisors, we want to acknowledge our clients’ feelings and acknowledge how scary stock market investing can be.
Consider your own variation of the below when speaking with your clients:
Yes, stock market investing is nerve-racking – especially right now! It is simply scary to watch your nest egg shrink. You and I both know that you’ve worked your whole life [at X company/in Y industry] to save this money. Nobody enjoys seeing the value of their investments go down. I get it; I understand.
From the example above, one key takeaway is this: when speaking to clients about personal finance, keep it simple and avoid using financial jargon like “volatility,” “standard deviation,” etc.
After acknowledging their hesitancy and nervousness, take a pause. Give your clients ample time to process your acknowledgement. Do not rush through the moment.
Step 2: Empathize with Your Investment Advisory Clients’ Emotions
After allowing your clients a moment to process your acknowledgement, empathize with them. We want to let our clients know that we have feelings too! We are human, after all.
Your clients may assume that – as an investment adviser – you are insulated from the emotions of stock market investing. Let your clients know that is not the case!
Consider your own variation of the following when explaining just this to them:
I do not like this either. Like you, I have my life’s savings in the stock market. And it never feels great to see red numbers in my account. I get anxious too.
Again, pause and give your clients time to process this message and respond. They may continue sharing feelings. If so, continue to acknowledge, validate, and empathize with their expressed concerns.
Step 3: Reassure & Frame Investments within Their Financial Plan
Transitioning to the next step of the conversation is the hardest part of this process. It is important – as mentioned – to give the clients ample time for validation of their feelings. Again, this transition is best accomplished by executing a long pause; take a beat to ensure that your clients have successfully processed your message – and that they have no more feelings or thoughts to share.
Once your client has finished venting, move to the next step: reassurance. Here, you will normalize stock market volatility, framing it within the context of your clients’ existing financial plans, goals, distribution timelines, etc.
For this conversation, avoid transition words or phrases: “but,” “fortunately,” “however,” “the good news is,” etc. Such a segue could invalidate previous portions of the conversation around acknowledgement and empathy. Instead, pause. Then, present the solution.
Normalizing Stock Market Volatility
Discuss how stock market volatility is completely normal. (Again, do your best to avoid technical jargon.) Explain that this sort of behavior from their investments is expected. As advisors, we know that this is an expected component of the stock market. Now, pause. Let that message sink in before moving onto the next point.
Finally, discuss how since this volatility has been expected; you have planned for it. Assure your clients that they are insulated from this volatility because their greater financial plan has factored it in. For younger clients (further away from the asset distribution phase), this means that their timeline to distribution insulates them from this volatility. For those clients near/in the distribution phase, their relatively smaller allocation to volatile assets makes this volatility a non-issue.
Consider your own variation of the following:
We know that the stock market is going to do this – to go down in value sometimes. That’s just the way it works. <PAUSE>
Your financial plan has already taken this into account; we saw this coming. This expected stock market behavior was already baked into your financial plan. We have already positioned your investments – for this bout and every other future stock market gyration. Because we have already planned for this, we won’t change your investments.
[For clients in or near the distribution phase] The amount of your money in these risky investments is so low that today’s stock market performance is not going to impact your life. Your quality of life is not going to change. We are still going to send $X to your checking account every single month.
Then, get their buy-in:
Is that OK with you?
[For clients in the accumulation phase] By the time you enter retirement, you likely won’t even remember this conversation. Between now and then, your investments will carry on. All we need to do now is wait patiently. Patient investors are rewarded. So, we are going to be patient investors – and you are going to get the rewards of being patient.
Side note: If you are unsure that your clients’ investments are aligned with their financial plan, their timeline to distribution, goals, etc., now would be a good time to re-assess that. Consider a fixed (but adjusted for inflation) distribution rate for retiree clients as a panacea for stock market volatility.
Soothing Client Concerns about Stock Market Investing
Practice these lines – or your variation of them – until you feel completely comfortable with the conversation. Get to a point where the words flow freely at a slow and tempered pace.
With mastery of this technique, you will add value to your clients’ lives – confidently guiding them through the worst of the volatility of the stock market.
To help with these conversations, click here to receive a copy of Dunham's Market Cycle Chart. This chart will help you show clients how the market performed during the last 9 market cycles since World War II.
Dunham: Trust & Investment Firm
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