This checklist provides behavioral techniques to help clients manage their emotions and their investments.
As the market pendulum continues to swing back and forth, many investors may be struggling to rein in their emotions. During these troubling times, financial advisors can use behavioral coaching tactics to help their clients manage their emotions and avoid making rash decisions.
However, we know this is easier said than done. Client conversations during market volatility tend to be more rooted in the need for reassurance rather than investment analysis. During times of high stress and uncertainty, both of these issues become more complicated as we struggle internally to tune out irrelevant information, have the strength to stick with the plan, and resist the urge to follow a fearful herd.
To help advisors manage clients during market volatility, we created a conversation checklist. It features behavioral techniques you can use to combat the psychological struggle your clients may be facing right now.
A Framework for Handling a Variety of Client Situations
Investors will handle their emotions in their own ways during these turbulent times—not all of them will necessarily be in a state of panic. Some investors may be wary of the situation and curious as to how they should respond. No matter how your client feels, there are steps you can take now to ensure their emotions don’t interfere with their financial decisions.
Our checklist offers suggestions for how to navigate client conversations based on a few different situations:
- If your client is relatively calm but is reaching out to you, this is the time to prepare your client for any emotions that may appear down the road.
- If your client is already overwhelmed by the current volatility, focus on ways that you can help them avoid knee-jerk reactions. The aim of this scenario’s techniques is to help your client take a step back from their emotions and engage in a more thoughtful decision-making process.
- If your client hasn’t connected with you yet, you can be proactive in developing the appropriate way to handle the situation.
- Share how our emotions can be our own worst enemy when it comes to investing. Fear narrows attention and induces people to fixate on shortterm headlines, rather than long-term goals.
- Strengthen that point with supplementary information, such as this article that explains where these emotions come from and how we can overcome them in investing.
- Many people run away from falling markets, and because of that, it can present opportunities for finding good values in the marketplace.
- Short-term volatility is an inevitable part of investing. That’s why our focus is on long-term performance toward investor goals
- Remind your client that their financial plan was developed with their goals in mind, and (if they are) that they’re still on track to meet their long-term goals with their current asset allocation and time horizon.
- Agree on a three-day wait rule, where you can’t act on certain client decisions for three days.
- Agree that a loved one or a spouse must sign off on certain client decisions before you can act on them.
- Teach in the moment on the universal nature of our investing biases–researchers have found that these insights on how we all suffer from them can help people recognize and overcome them.
- Set the right narrative of opportunity, of countering the herd, looking for long-term value, and focusing on goals.