The actions and decisions financial advisors make in times of market stress can have an impact in three areas
With only days to go before the end of 2018, it seems the prospects of a Santa Claus rally or miracle rebound in the markets have all but vanished. And while many analysts are just stopping short of calling an upcoming recession, there’s broad agreement that investors have to position themselves for weakness and volatility.
It’s not just investors that have to prepare as winter comes, however. As Greg Luken, founder and CEO of Luken Investment Analytics explained, advisors must recognize that turbulent times can mark a turning point for their own careers.
“[T]he next market slide could impact your career in three ways: your client relationships, asset levels and growth trajectory,” he said in a piece for WealthManagement.com.
Citing his own experience and research, Luken said that client relationships could be solidified or fractured during the crucible of down markets depending on an advisor’s communication and actions. Frequent points of contact, initiated before the client feels the need to call, are paramount. He recommended that conversations be held at least once a month, and that they be kept short and to the point.
“[C]lients don’t want to hear, ‘Just ride it out. Stocks always bounce back,’ even if that’s true,” he stressed. “They want action, and gestures, even small ones like reaching out via phone … go a long way to satisfying that desire and solidifying the relationship.”
He also urged advisors to minimize the losses incurred in client portfolios, especially as an asset decline of 10% would require a subsequent gain of more than 11% to return to the break-even point. This is especially important for fee-based advisors: reducing client risk could not only affect their current income, but it could also affect future revenue and, ultimately, their succession plan’s value.
Finally, he highlighted the fact that the business growth trajectory of a practice can turn on how well the advisor can maintain or strengthen client bonds during a bear market. Helping clients avoid the full brunt of volatility can lead to more and higher-quality referrals, which in turn will accelerate growth. That can pave the way for the advisor to have a higher-valuation practice as he nears his own retirement from the industry.
“[P]roactive communication and risk management can positively impact the growth trajectory and valuation for an advisory business,” Luken concluded.
