How to talk to your clients about market volatility

Market volatility can be a nerve-racking experience for anyone. Most of us are familiar with statistics citing the fact that clients tend to panic-sell during sell-offs, which minimizes their participation when markets eventually rebound. This results in “sub-par” returns over time.

Typically, we alleviate client anxieties by explaining that market fluctuations are normal–they don’t move in straight lines. We explain that these fluctuations are an opportunity to add to attractive positions so that we take advantage of volatility rather than just allow our portfolios to be victimized by it. We may even use some hindsight example like ’08 – ’09 to highlight that even in the most turbulent markets, portfolios recovered so long as clients stayed invested and could participate in the eventual rise. But can we do more?

Each morning, I drive into work, usually arriving by 8:00 a.m. with meetings and calls starting at 8:30 a.m. My hour-long commute includes periodic bouts of “light” traffic, but occasionally it’s especially heavy—threatening to make me late or miss my early obligations. It’s in these moments that I find solace in Google Maps, and its real-time “arrival time” projections.

When I begin to feel anxious that traffic is going to derail something in my schedule, my “commute-advisor,” Google, more often than not reminds me that I’ll actually arrive in time. What it’s doing, importantly, is allowing me to connect the dots between my objective (to arrive in time for an 8:30 a.m. meeting) and my current position. With help from my “commute advisor,” I can see that in spite of what’s happening around me, I am still very much on track. Is wealth management much different?

We all get tunnel vision from time to time and, understandably, this is especially true for clients in turbulent markets. But whether commuter or client, there’s something to be said for focusing attention on the end game. This is an opportunity to reframe the conversation by placing “performance” in context, and remind clients that their objectives, which they came to you to address in the first place, may still be very much on track.

As wealth managers, we best speak to market volatility by helping to connect the dots for clients between portfolio activity, articulated client objectives, and the financial plan you’ve already created with them.