28 November 2020
Michael Lovett
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Volatility Highlights The Need For Behavioral Coaching
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The most common topic ofconversation I’ve been having with advisors recently is around marketvolatility. While the recent volatility is certainly normal in the context oflong-term market behavior, it feels especially jarring with the memories ofnegative investment statements all but faded. Clients are feeling uneasy.Investor amnesia is real; we’ve all seen it! 

If history has shown usanything, it’s that the stock market is destined to go through anothersustained down period. Are you and your clients prepared for a potentially morechallenging investment environment ahead? 

The chart below offers anextreme example of the dangers of letting clients’ emotions control theirinvesting decisions. Skittish investors who pulled their money from the marketsduring the 2008 recession missed out on the recovery. Investors who stayed thecourse were rewarded. That’s a lesson we can all learn when market volatilitykicks in. 

Why behavioral coaching matters 

In recent years your role asa behavioral coach has likely meant discouraging clients from taking onexcessive equity risk or chasing higher yields. But being a successful behavioral coach also means helping clients understand the bigger picture oflong-term averages and the need to stay in the markets during downturns. 

You’ve laid the foundationto get them thinking long-term, to understand that markets don’t increaseforever, and you’ve gotten them prepared for when the bulls leave and the bearsshow up. 

There is a lot of talkaround the value of advice, and in our advisor’s alpha research, we outline why we believe behavioral coaching can addsignificant value to your clients’ portfolios. Think of the example in thechart above. If you had successfully discouraged your clients from changingtheir 50% stock/50% bond portfolios to all cash in March 2009, then you wouldhave saved them from missing out on 87% in returns. 

Have a communication plan in place 

Even if you’ve been talkingto clients throughout your relationship about long-term investing, they’lllikely need to be reminded about those principles during the heat of a marketcorrection. In a separate blogpost, my colleague Don Bennyhoff talks about a VALU framework for clientconversations where you reinforce the value you’re providing.  

Here are a few of my own suggestions: 

  • Prepare general talking points and have standard charts (like the one above) ready that you can use during times of market stress.
  • Talk to your staff about the messages you’ll be delivering to clients during tumultuous market events. They can help support your outreach and reinforce consistent communication.
  • Be proactive, and connect with clients before they contact you. Research shows that if you’re responsive and reach out to clients before they pick up the phone to call you, it goes a long way to building trust. Clients who had a high level of trust in their advisor have a 70% likelihood of giving them more money to invest and a 94% chance they would recommend their advisor to others.
  • And know what method of communication clients prefer. Some may need a simple email of reassurance, while others may require a phone conversation or an in-person chat. Try something different, such as a live webinar with your client.

Putting clients on theright path 

Successful investing andsuccessful client relationships often rely more on taming emotions than ontaming the markets. 

In a world where advisors’value propositions are under pressure, the better advisors will focus on areaswhere significant value can be added. We believe behavioral coaching is one ofthe keys to success. 

Click here for the original article from Vanguard. 

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