Having empathy for clients who are nervous about the market downturn is also important, says a top advisor.kate_sept2004/iStockPhoto / Getty Images
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It’s a tough time to be a wealth advisor given the prolonged market correction, rising inflation and higher borrowing costs that are making investors increasingly anxious about their portfolios and overall financial well-being.
For many advisors, these are the times when the real work happens – persuading investors to stick with their investment plans during tumultuous times. It’s not just about managing their money but also coaching clients not to let their emotions talk them into making decisions – such as panic selling or buying stocks overconfidently – they might later regret.
“It’s difficult for investors to go through a correction like this,” says Michael Marcovitz, senior investment advisor at TD Wealth Private Investment Advice in Toronto and one of the 150 advisors on The Globe and Mail and SHOOK Research’s Canada’s Top Wealth Advisors ranking.
“We’re reminding them that staying the course is absolutely critical to their future financial well-being and achieving their financial goals in the medium and longer term.”
Mr. Marcovitz says market downturns are a good time for advisors to deepen their relationships with clients by helping them make wise investment decisions and educating them about markets and human emotions that can impact their portfolios.
“Clients are concerned, and they’re relying on us as their advisors to provide direction and guidance,” he says.
“So, the way we do that is to review the client’s financial plan and the various components of their portfolio allocation and consider any adjustments that may be necessary – whether in their planning, budgeting, or the portfolio structure.”
This provides clients with the comfort they’re looking for and the confidence that they’re on the right track, he adds.
Having empathy for clients who are nervous about the market downturn also is important, Mr. Marcovitz says.
“Clients want to know that we care about them, their future, [and] that we’re in it together,” he says. “Seeing the various cycles of bull and bear markets over many years allows us to provide the necessary leadership and experience clients are looking for.”
Mr. Marcovitz also thinks advisors should ramp up communication with clients when markets are turbulent “so they know that their advisor is thinking about them and is there for them, standing by ready to help.”
Address sources of fear
Maili Wong, senior wealth advisor and senior portfolio manager with The Wong Group at Wellington-Altus Private Wealth Inc. in Vancouver – also one of Canada’s Top Wealth Advisors – says her team has been proactive with clients during this and previous market corrections.
“We aim to call them before they call us, or if they’re nervous, we invite them in. It makes them feel so much better,” she says.
“Nobody has a crystal ball, but we want them to know we’re here, walking alongside them, navigating these difficult times.”
She says advisors should also discuss with clients what, in particular, is making them feel uneasy beyond just a drop in market valuations.
“Address the source of the fear or the emotional trigger,” she says. “Sometimes, as advisors, we’re scared to go there. We want to avoid it. But I find it’s really helpful for our clients if we can help them address their fears and talk about them.”
Ms. Wong says it’s also a good time to reinforce to clients the importance of having a financial plan – and sticking to it.
“Sometimes, when investors’ emotions get heightened, they feel like they need to do something to stem the pain,” she says. “We counsel them that to get a higher rate of return, long term, they’re going have to consider the risk versus the reward and accept that there’s volatility along the way.”
Beware of cognitive bias
Gerry Ramos, who teaches behavioural finance at Concordia University’s John Molson School of Business and the Lazaridis School of Business and Economics at Wilfrid Laurier University, says advisors should pay close attention to cognitive biases that may be affecting their clients.
Examples include loss aversion, in which the pain of losing money is twice as powerful as the joy of gaining, or herd mentality, making decisions – such as selling stocks – based on others’ actions.
Mr. Ramos says advisors can add value by helping clients understand that these biases are only human but acting on them could have a long-term negative impact on their portfolios.
“The mob has its own agenda, so you have to pull them out,” says Mr. Ramos, who is also a senior total wealth planner at Scotia Wealth Management in Waterloo, Ont.
His advice? “Pick apart the fear and personalize their story.”
For example, he says advisors might want to remind investors in their 40s or 50s that they’re still a decade or more away from retirement, which is a lot of time for their portfolios to recover.
Advisors should also be conscious of their own cognitive biases that may be affecting clients’ emotions and behaviour.
“Advisors are the storytellers who have a great part in affecting client behaviour,” he says.
And they should also be cognizant of how they communicate market events to clients, especially in a correction.
“You can call your clients and tell them everything is okay, but if they sense you’re panicked, the message is lost,” Mr. Ramos says. “Clients are taking cues from their advisors.”
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