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Managing Client Anxiety beyond Market Volatility

A remnant from the Great Recession is ongoing financial anxiety about the future. The recent global market turmoil highlighted how this anxiety sits as a strong influencer across generations and wealth strata. Consider the following from recent studies:

Overemphasizing Market Volatility
The Jefferson National/Harris study identified market volatility as the No. 1 issue for both the macro environment and investment execution (noting the concern is actually downside volatility; investors are fine with volatility in rising markets). Volatility’s prominence in investor consciousness speaks to an important truth: when markets decline, wealth is lost; and, when wealth is lost, anxiety increases.

However, market declines are an overemphasized contributor to financial anxiety since any dollar lost has the same wealth affect. Dollars are also lost due to overspending, changed priorities, financial mistakes, unprotected property, tax inefficiency and excessive investment product fees.

Each time a dollar is lost unnecessarily, its compounding value is lost too. Wealth preservation must minimize the loss of dollars from any source, and each dollar not lost allows the remaining wealth to compound from a higher floor.

A Plan’s Wealth-Protecting Actions
Beyond a diversified portfolio to minimize the impact from market downturns, a comprehensive wealth plan protects against many other losses such as:

  • Reducing taxes through tax-loss harvesting, gains management, income shifting, and asset location
  • Lowering expenses for core asset classes with ETFs or passive mutual funds.
  • Avoiding waste by setting spending priorities and budgets
  • Eliminating financial mistakes by using an adviser’s expertise
  • Protecting property with new appraisals and resetting coverage
  • Avoiding probate using a Revocable Living Trust

Something is Clearly Missing
After the wealth plan is executed, attention shifts to the portfolio’s investment performance, thereby excluding the important value secured from the other wealth-protecting actions.

Whereas market declines are infrequent and unpredictable, overspending, taxes and high fees degrade wealth day after day. Preventing these other wealth leakages have absolute monetary value that, in total, can exceed the value generated through portfolio design.

Consider if the S&P 500 declined 50 percent over a few weeks, wealth would clearly be impacted at that moment; paper losses would result with clients’ anxiety spiking. The above IMCA data point highlights that clients value an adviser who keeps them calm in a downturn and prevents paper losses from being realized in a panic. Over time as markets rebound, the paper losses would be washed away by a new bull market—i.e. bull markets last much longer than bear markets.

What’s missed in the reporting task is a high-income client’s largest single expense every year is taxes, at a marginal rate exceeding 50 percent in high-tax states. This annual wealth erosion can far exceed the impact from a single, even severe market decline.

At the typical client meeting, the adviser’s tax alpha production—increased after-tax returns resulting from tax management tactics—is nowhere to be found in the report package.

Not Just Performance Reporting, but Value Reporting
In a performance report, a low-basis investment is shown with a large unrealized gain; a paper profit that may not be realized for years to come. The client’s financial anxiety is reduced knowing this asset exists should it be needed.

In the same vein, the adviser’s wealth-protecting actions have value even though some remain unrealized at a particular time—like a property loss or probate.

An adviser’s value is accentuated when all wealth-protecting actions are illustrated side by side in the performance report package. Seeing the wealth plan’s total value—not just related to portfolio returns—reduces anxiety from headline-grabbing market declines. When anxiety is reduced, a good portion of those 475 hours spent worrying are left to more inspiring thoughts. How could an adviser’s value to this client be more evident?

Kirk LouryKirk Loury
Wealth Planning Consulting Inc.
Princeton Junction, NJ

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Everybody Calm Down: 4 Tips to Navigate the Market Correction

This hasn’t been the best week for investors. Many of you probably got calls from scared or frustrated clients wanting to do irrational things—like sell stocks—to make themselves feel better.

And fielding these calls might not be easy, but we’ve got four steps for you to help you navigate the market correction and comfort your clients.

No. 1: Make Sure Clients Don’t Panic, Don’t Flee
It’s our natural instinct to want to flee a painful or uncomfortable situation and while that may work in life, it doesn’t work in the stock market.

Steve Sanduski, president of Belay Advisor in Mequon, Wisconsin, told U.S. News that the biggest mistake investors can make is fleeing the market at the wrong time.

“We know getting panicky and selling after stocks have already nosedived is a pretty lousy investment strategy, but investors do it anyway,” said David Greene, host of NPR’s Morning Edition.

And many investors did that, said Nigel Green, CEO of deVere Group. “The sell-offs were considerable on so-called ‘Black Monday,’ and the volatility continued in Tuesday’s and Wednesday’s trading,” Green said in a news release.

Boulder, Colo.-based adviser Trent Porter told NPR he’d advised this to his clients: that the stock market is like a roller coaster, “The only time you get hurt in the stock market…is when you get out,” while it’s still running and you’re still strapped in.

“Sometimes doing nothing makes more sense than throwing in the towel,” Brian Jacobsen, CFA, CFP, Ph.D., wrote in a Wells Fargo blog post.

But you, advisers, shouldn’t let your clients be those investors. In order to keep them from panicking, be empathetic, understanding, and (which leads us to our next tip), engage in active listening.

No. 2: Engage in Active Listening
Suppress the urge to launch into a monologue about the market and how it will be OK—let your client talk. Let them vent and say what they need to say. Chances are they’ll be upset and emotional, but once they have the opportunity to get it off their chest, you can swoop in and comfort them.

Psychologist Jack Singer, author of “The Financial Advisor’s Ultimate Stress Mastery Guide,” told Financial Planning that most likely clients aren’t going to be immediately reassured but active listening will help clients feel confident in the financial plan you’ve laid out for them.

“When you initiate active listening, you first just take a breath and just listen to the position of the client without judging it,” Singer told Financial Planning. Put yourselves in their position and say things like, “I understand you’re frightened that you may outlive your wealth because of the value today of your portfolio.”

When clients realize you’re on the same page and that you understand what they’re feeling, they’re open to objectively listening to you.

FPA published an article, “5 Steps to Calming Upset Clients,” that reinforced Singer’s conclusions. Author Barbara Kay noted the five steps are to listen, acknowledge, agree, add your perspective, and resolve.

“These five steps, employed with skillful diplomacy, build a foundation for resolution,” Kay wrote.

But note that if your client is still stuck in an emotionally charged state, it’s best to tell them you’re going to explore options for them while they take a little time to calm down.

No. 3: See the Opportunity
There’s always a silver lining.

With these reduced prices, there’s a buying opportunity, Scott Wren, senior equity strategist for Wells Fargo told Financial Planning.

“You should be buying the sectors that have been hit the worst,” Wren said he advised clients.

Plus, the Fed and the Bank of England are less likely to raise interest rates this year like they’d planned, Nigel Green said. When they do raise them, they’re likely to be more cautious.

“Fortunately the Fed and the Bank of England now have time to evaluate if an imminent interest rate rise is necessary,” Green said in a news release. “If the Chinese stock market had fallen after any interest rate rises, the fallout could have been much, much worse.”

No. 4: Be Comforted by History
We were overdue for a market correction, experts say.

“We have not seen a correction for a while,” Joe Davis, chief global economist at Vanguard told Financial Advisor Magazine. “If the catalyst had not been China, it would have been something else.”

Jacobsen wrote in the Wells Fargo blog post that historically for corrections since December 1949, the average gain is 47 percent (a median of 32.4 percent) and the average duration from trough to the next peak is 495 days (a median of 289 days). The first peak in this correction occurred on May 21, 2015, when the S&P 500 was at a high $2,130.82, and as of today (Aug. 27) we are 96 days into the correction zone.

Plus, Jacobsen said, advances are longer and more powerful than corrections.

“The current correction, I think, will rebound more quickly than 2011’s or 1953’s [corrections],” Jacobsen reassured readers. “Growth is more robust than market prices are suggesting.”

So just like you tell your clients not to panic, we tell you not to panic. As FPA members, you have many resources at your disposal to help you through this correction. Check out our Knowledge Circles, discuss the current market and how you’re handing it with clients on FPA Connect, and stay connected with your local chapter.

HeadshotAna Trujillo
Associate Editor
Journal of Financial Planning
Denver, Colo.

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Use Silence to Invite Clients to Share Valuable Information

SilenceDuring a seminar on communication I conducted a few months ago, I posed a question to my audience. No one was able to provide an immediate response, so I had to wait for a while until someone offered an answer.

At the end of the seminar, one of the attendees asked me how I could have remained so unperturbed by the nearly five minutes of deafening silence that followed my question. In my answer I explained that the silence lasted less than a minute—not five, as this individual and perhaps the rest of the attendees felt—and that learning to be at ease with silence can empower us to make effective use of it.

In our daily interactions with clients, occasionally we find ourselves in situations when there is silence in the conversation and the pause(s) feel agonizingly lengthy. Silence can make anyone awfully uncomfortable, coercing people to fill the air with words. Silence often frightens us because its emptiness feels idle, boring, unproductive and scary. Especially in our Western culture we are prone to think of silence as the absence of something, a gap that needs to be swiftly filled, as it feels odd and empty.

Contrary to our perception, silence is instead very rich with meaning once we let it speak to us. Think of the last time you experienced a period of silence during a client meeting. Recall the uneasiness you faced and the quick dash you made to fill the silence gap with words. You are not alone. Industry research revealed that just after 2 to 3 second after posing a question, the average individual engaged in some sort of client sale/interaction, restates her question and proceeds to answering it herself or changing the topic. This is due to the fear of facing a silent pause.

Let silence become your powerful ally, not your enemy. Silence temporarily quiets our ego enabling us to focus on the core of our issues in the present moment. It fosters introspection, which in turn leads to clarity of mind and to a mental expansion that enables ideas to spring within us and come to life. During a client meeting, silence can provide a golden opportunity to mindfully listen and wordlessly invite that person to fill “your silence gap” with valuable information that may enable you to get more business or assets. Remember that your client or prospect may loath silence as much as you do. Consequently, when facing your silent pause he or she may volunteer information that he or she would have otherwise kept to himself.

Silence can make you more effective, as it forces you to implement mindful listening, the foundation of effective communication, which nourishes both the speaker and the listener. During the course of a conversation with a client or prospect there are opportunities when you can strategically use silence to your advantage. For example, after posing the question, “What are the most important challenges our firm could help you address?” keep silent for a couple of moments to allow the prospect time to answer. After the answer, extending your silence a few more seconds will likely prompt her to further articulate on her answer and provide additional important information.

A well-placed silent pause can enable your clients to experience some specific insights, understanding or revelations that may not manifest during traditional verbal exchanges. In life, the answers to any of our questions always dwell within us, and most of the times silence rather than ongoing chatter is all we need to find an answer.

Claudio PannunzioClaudio O. Pannunzio
President and Founder
i-Impact Group
Greenwich, Conn.