We all know that during volatile markets advisors can expect to get many panicked calls from clients about their investments. Clients depend on advisors to help them understand volatile markets and, we’ve come off of a year where the dominant headlines often spelled out bad news.
The outlook for this year also includes some ups and downs. Thus, it can be expected that many clients already are or will be worried about how their accounts will be impacted, particularly their retirement accounts.
We have some ideas for how to approach client conversations in the midst of volatile markets.
Focus on the Goal
Last year we saw significant declines to stock and bond prices along with sharp increases in interest rates. When there is pervasive bad news like this, is there any advice to provide distraught clients besides “stay the course”?
In fact, there is. We think that volatile markets create a great moment to help clients focus on goals, not account balances. A successful focus on goals might actually paint a better picture for your client and deepen their appreciation for your services. How does this work?
First, let’s understand a bit more about a goal-based approach to money management. The goal-based approach simultaneously considers the assets – a client’s current portfolio – and the liability – the financial value of the goal itself.
During volatile markets the client’s current portfolio value is generally changing – sometimes dramatically. This is what clients focus on (and freak out about). What they aren’t always focused on is the value of the goal itself and how that is changing.
It’s natural to think that a financial goal is static. But it’s not! Think about buying a house. House prices are constantly changing in response to a multitude of factors like interest rates, demand or the economy. It’s a moving target! And many of those factors that are impacting your client’s portfolio will also be impacting the values of their goals, like the house they want to buy.
You as the advisor can help your client see the bigger picture. If the economy is in a recession and interest rates are rising, their current portfolio value may be going down, but in all likelihood, the cost of the house they want to buy is also going down. Therefore, their portfolio doesn’t need to be as big to afford the same house they originally wanted.
That is the power of a goal-based approach. Helping your clients see the bigger picture and focus on goals, can help you manage their expectations and fears during a period of market volatility.
Can you deliver good news?
This is the power of a goal-based approach. Changes in the market don’t only affect portfolio balances, they affect many factors that go into a financial plan. Often, in different ways. Therefore, by putting a client’s portfolio balance into the broader context of the goals they are trying to achieve, it can help to calm fears that have been bolstered by alarming headlines.
With the current market events, the biggest silver lining is actually that it’s not only impacting their current portfolio balances in a vacuum. There’s a broader impact to their overall financial plan that may not spell as much bad news as they think! Take a look at how your clients are tracking toward their goals and you might be surprised that you can deliver some good news!
One way to help your clients or prospects map out their financial goals and see their progress is using Lasso. Share the link with them to help support your conversation.