Managing Client Expectations: What to Say When Stocks Fall

Every financial advisor knows that stock market downturns are inevitable. They're as much a part of the economic cycle as boom periods. But while numbers on a screen can seem cold and factual, the emotions they stir up in clients are intensely real. The global reaction to the covid-19 pandemic served as a glaring reminder of how swift and steep market declines can be, and how such events test both the nerves of investors and the skills of advisors.

At the heart of managing these challenging moments lies effective client communication. It's not just about delivering facts but understanding the fears, hopes, and concerns that often bubble to the surface when the market takes a dip. Good communicators recognize this delicate balance, knowing that what they say (and how they say it) can either deepen trust or erode it.

Market downturns, therefore, aren't just tests of financial strategies. They're litmus tests for the client relationship itself. Every interaction, every update, every reassurance becomes a building block – or a stumbling block – for that bond. It's during these turbulent times that an advisor's true mettle is revealed.

Setting Expectations Early

Every experienced financial advisor knows that preparation is the key to handling any storm, including a stock market dip. While reactive measures are essential during downturns, proactive communication can make a significant difference in how clients perceive and respond to market turbulence.

Setting expectations early isn't just about outlining investment strategies; it's about establishing a foundation of understanding and trust. From the very beginning, clients should be educated on the inherent risks and rewards of the stock market. By explaining that markets naturally ebb and flow, and that downturns are a normal part of the investment journey, advisors can lay the groundwork for resilience.

One crucial aspect of this phase is to actively manage expectations. It's tempting to promise high returns and smooth sailing, especially when markets are bullish. However, true customer satisfaction arises not from unrealized gains but from aligning client expectations with market realities. It's better to paint a balanced picture than an overly rosy one.

In the same breath, it's crucial to consistently revisit and reinforce these expectations, especially during periods of growth. Clients who remember that downturns are a possibility will be less shocked when they occur and more appreciative of the measures in place to navigate them. This continuous loop of communication helps to build trust, ensuring that when the market does waver, the client-advisor relationship remains strong.

How You SHOULD Communicate During a Market Downturn

Navigating a bear market requires more than just financial acumen; it demands exceptional communication skills. The way financial advisors communicate during these trying times can make or break the trust clients have placed in them. 

Here are some key "dos" to ensure effective communication:

• Become an Active Listener: Before you can offer solutions, it's vital to understand the concerns. Listen to your clients' fears and anxieties without interruption. By being an active listener, you show empathy, making clients feel understood and valued.
• Prioritize Regular Phone Calls: While emails and text messages offer convenience, the personal touch of a phone call during stressful times cannot be understated. A call not only provides reassurance but also fosters a deeper connection. Ensure you're checking in regularly, even if it's just a brief chat to touch base.
• Communicate Effectively with Transparency: It's essential to provide clear, jargon-free explanations. Whether discussing market trends or the specifics of a portfolio, ensure your language is accessible. Remember, it's not about talking down but simplifying complexities.
• Highlight the Short Term vs. Long Term: A common fear during downturns is that losses are permanent. Take the time to explain the difference between short-term market fluctuations and long-term investment strategies. Reinforce the idea that market downturns, while challenging, can be temporary, and the overall investment journey is a long one.
• Maintain a Calm Demeanor: Emotions can run high during a bear market. By maintaining a composed and steady demeanor, advisors can act as a calming influence, helping clients to make rational decisions rather than ones based on fear.

By making these "dos" a part of your communication strategy, you position yourself as a guiding light during the storm, reinforcing your role as a trusted partner in your client's financial journey.

How NOT to Communicate During a Market Downturn

While understanding what to do during a market downturn is crucial, it's equally vital to recognize what to avoid. 

Here are some "don'ts" that can safeguard the relationship you've built with your clients:

• Don't Downplay the Situation: A stock market crash can cause significant anxiety. It's not helpful to dismiss or downplay it, even if you believe the market will recover. Clients seek understanding and empathy, not disregard.
• Avoid Overwhelming Clients with Data: While it might be tempting to cite every statistic, like the movements in the dow jones industrial average on single days, avoid bombarding your clients with too much information. It can often lead to more confusion rather than clarity.
• Don't Promise Immediate Turnarounds: Nobody has a crystal ball. Be cautious about making promises or guarantees about swift market recoveries. It's essential to remain realistic and transparent about the uncertainties of investing.
• Avoid Pushing a New Product or Service: A downturn isn't the time to seem pushy. While there may be legitimate strategies or products that could benefit the client, be sensitive to timing. Ensure any recommendations come from a place of genuine concern for their well-being, not as a sales pitch.
• Don't Go Silent: One of the worst mistakes is disappearing during challenging times. Even if you don't have all the answers, maintaining communication is key. Clients will remember your presence and support during the tough times. This will solidify the trust you've built together.

By steering clear of these pitfalls and focusing on genuine, empathetic communication, you can help your clients navigate the complexities of a downturn, ensuring the foundation of trust remains unshaken.

Being Proactive, Not Reactive

The hallmark of a successful financial advisor isn't just in how they react to events but how they anticipate them and set proactive measures in place. In times of market uncertainty, shifting from a reactive stance to a proactive one can make all the difference.

• Study the Indicators: While no one can predict market movements with absolute certainty, various indicators can provide clues. For instance, decisions by the Federal Reserve on interest rates can have significant impacts on market behavior. By keeping a close eye on such indicators, you can provide timely advice to your clients, even before market shifts occur.
• Regularly Update Clients: Instead of waiting for clients to reach out during a downturn, make it a habit to communicate regularly. This can be as simple as sending monthly newsletters with market insights or conducting quarterly reviews. Regular communication helps in setting the stage for stability, even when a bear market turns to a bull market.
• Scenario Planning: Work with your clients to create different financial scenarios, both optimistic and pessimistic. By discussing potential downturns and having strategies in place for various market conditions, clients are less likely to be caught off-guard.
• Embrace Financial Education: Educate your clients about the cyclical nature of markets. The more they understand, the less they're likely to panic during downturns. A client who knows the difference between short-term volatility and long-term growth is more likely to stay the course.
• Adjust Investment Strategies as Needed: While it's essential to have a long-term investment strategy, it's equally important to make necessary adjustments based on market conditions and individual client needs.

By adopting a proactive approach, not only do you empower your clients to make informed decisions, but you also strengthen the advisor-client bond. It shifts the narrative from merely weathering the storm to confidently sailing through it.

Make the Most of Client Communication 

Every financial advisor knows that market downturns, whether due to a stock market crash or global events, are a given. While the unpredictability of the financial landscape might seem daunting, there's one thing that remains consistent: the need for clear, calm, and effective communication with clients.

Imagine a service designed specifically for this purpose. A platform that equips advisors with the tools, insights, and strategies to communicate more efficiently during turbulent times. By leveraging such a service, advisors can bridge the gap between market uncertainties and client confidence. That's where Planswell can help. 

No single product or service can predict the market's twists and turns. But with the right communication tools in hand, advisors can ensure their clients are always informed, reassured, and ready to navigate whatever the market throws their way. In the end, it's not just about weathering the storm—it's about sailing through it with confidence, together.

Invest in enhancing your communication today for a more secure and trusting client relationship tomorrow.