This article first appeared in Professional Adviser.
Russia’s invasion of Ukraine sent shockwaves across the world and, as global markets plummeted in the wake of these deeply concerning events, financial advisers’ attention turned to reassuring clients about the potential impact on their wealth and long-term savings. In this blog, we look at how advisers can best do so during such tumultuous times…
While many clients are now well-accustomed to the ‘keep calm and stay invested’ message that was instilled in them throughout the pandemic and previous crises, the current crisis comes at a time when markets are already under significant stress, owing to factors such as supply chain constraints and sky-high inflation.
As the situation continues to develop, it’s therefore vital for advisers to stay mindful of clients who may be feeling understandably nervous about their long-term financial plans.
Clearly advisers will have different relationships with each of their clients and what resonates with one person might not with another. In my experience, there are three sure-fire ways to help people feel more secure in their investments in times of uncertainty.
1. Don’t go overboard with communications
I’m a big believer in client communications, but there’s a danger of ‘over-reassuring’ clients in times like these. While we should absolutely engage with clients during major periods of volatility, notifying them every time the market falls isn’t helpful and will create undue anxiety.
Ultimately, advisers should aim to be the voice of reason amid the constant noise we’re all exposed to through the news and social media right now. This means keeping things purely factual and ensuring that the whole team is aligned in the messaging being sent to clients.
Should any major developments occur over the next few weeks, then issue a clear and concise note reiterating that clients should continue to stick to their plans unless advised otherwise – and also reminding them that you are always there to answer any questions. The age-old message ‘it’s about time in the market, not timing the market’ can be really effective here.
2. Steer clear of talking about ‘losses’
Apps that enable people to view their investments alongside other financial products and accounts have been a huge leap forward in personal finance, making it simpler for people to engage with their money and to stay attuned to its various movements. The trouble with the latter element is that it can lead clients to become fixated on short-term changes, which in times like these can be problematic.
If a client checks their phone and sees that their investments have plummeted, then their first instinct may be to act. We all know that statistically that is likely to be the worst thing to do for their investment, so it’s essential to have a strategy for dealing with these conversations.
In my experience, the best approach is to steer clear of using loaded words like ‘losses’. A loss doesn’t become a loss until you’ve crystallised it, so be prescriptive with clients – explain that what they’re actually seeing is a change in valuation and they haven’t lost anything unless they cash in at that point in time.
This might sound like an obvious point, but simple changes in language such as this can help people think differently and move away from short-termism.
3. Use analogies to help regain perspective
A useful analogy for helping clients see the bigger picture is property.
When property prices fall, a homeowner’s first thought isn’t to sell up, but rather to pause and take comfort in the notion that things will come right eventually. They would only sell at that point in time if they absolutely needed to, and a similar philosophy can also be applied to their other investments.
Of course, there are practical differences – it’s an awful lot harder to sell a house than to sell a share – but what really matters here is the mentality.
Getting clients to view the situation through a different lens (particularly a more relatable one such as property) can help to ensure that they think twice if they’re about to make a knee-jerk reaction.
Ultimately, the key to supporting clients through times of crisis is to find ways to help them think differently about the situation they find themselves in. It remains to be seen where things will go from here but, for now, we must remain cautious and hope for a positive solution for the Ukrainian people and the global community in the coming months.