Supporting clients during market volatility

‘Don’t panic’ is generally one of the first things investors hear when markets get volatile and it’s great advice. But for inexperienced investors, it can feel like the equivalent of telling them to calm down during a disagreement. In other words, it’s unwelcome!

To support these clients and help them avoid making rash decisions, these steps could help: 

1. Acknowledge the emotion: listening, understanding and showing empathy about clients’ concerns when they’re genuinely anxious, before getting into the facts, can go a long way towards helping them back to a mindset where it’s easier to make rational decisions.
2. Create context: illustrating that volatility is a normal part of how markets function and, over the long term, history has shown that investment values tend to recover. The cause may feel unprecedented, but the drops themselves aren’t. Shocks and uncertainty are expected, which is why many choose a diversified portfolio.
3. Offer perspective: looking at what it means specifically for each individual client’s situation and plan. Many firms will bring this perspective by clarifying whether the client’s circumstances, risk or goals have changed.  

Longer term, it’s about building investor resilience by educating clients on common behavioural biases, enduring investment principles and how to ‘act well’ through their investing lifetime. This will help break the link of someone’s financial wellbeing and confidence moving in lockstep with markets.

Engage and educate clients

This doesn’t necessarily mean getting into the technical details. It’s more about providing background on the specific reasons for current market volatility, while showing how it fits into the bigger picture, so they understand why they should remain calm and take a long-term view. 

Visuals illustrating ‘the wall of worry’ are one of the ways some firms will do this. For example, a chart showing how markets rise over time using a specific index, usually over a significant time period, highlighting the wide variety of shocks over that period.

Volatile periods are also a good opportunity to discuss the benefits of the classic ‘time in the market, not timing the market’, additional investment where suitable, pound cost averaging and having a properly diversified portfolio. 

Of course, market volatility is a particularly significant issue for clients looking to retire shortly or those already in drawdown, as moving assets into cash (outside what’s been agreed) is effectively locking in their losses. For these clients, depending on the circumstances, simple reassurance may be enough – by referring back to the cashflow model that illustrates how drops were built in and how the plan remains sustainable for their needs. Or reassurance that their particular withdrawal strategy is designed to ride out market cycles. However, for some clients it may be exploring ways to reduce the number or size of withdrawals if that’s an option. In some cases, it may be a combination of these. But more generally, drawdown clients are likely to need more frequent check-ins during volatile periods to help them feel informed and in control. 

Review investment solutions

Periods of market stress prompt many clients to ask difficult questions. But they also give financial planners one of their own – are current investment solutions still the most suitable ones to meet clients’ needs? The environment we’ve been in has changed and what worked for the last decade may not be right for the next. Multi asset solutions with a diverse spread of assets across regions, sectors and styles can help maximise risk-adjusted returns in a wide range of market conditions. In a more inflationary world, assets in a portfolio outside of just stocks and bonds, such as commodities, can add extra resilience.

It’s also useful to think about the benefits of active management in challenging market environments. We believe there’s no such thing as passive in multi asset due to the initial decisions that are made when portfolios are constructed. However, we also believe that true active strategies can be used within portfolios to help clients navigate the investment landscape, rather than strategies which simply follow market indices up and down. In addition, active strategies can be used to add incremental value as market opportunities arise, which can’t be achieved with passive strategies.  

Another opportunity to add value

Periods of market volatility are unsettling for everyone. But they give another opportunity to demonstrate the value of personalised financial planning and ongoing services. You can provide the expertise, emotional and behavioural support clients need in times of uncertainty, improving their wellbeing and financial confidence, and helping them enjoy the life they planned for.