7 deadly sins in a volatile market
No one can accurately predict the future, but it is important for agents and advisors to be proactive.
You’ve heard about the book “Who Moved my Cheese?” You know the concept: Suddenly things changed, and it’s not for the better. If you are an agent or advisor, you have individual clients. They are concerned about their retirement assets, their taxable assets, interest rates, the economy, the stock market and inflation. They are thinking “This time it’s different.” You need to be in touch.
Consider something about how people think: When something bad happens, we often try to assign blame. Someone must be at fault. In James Bond films, there is a super villain in the background causing havoc. On a more localized level, you see plenty of ads for personal injury lawyers talking about slip and fall accidents on commercial property or why you need a lawyer when dealing with an insurance company after an accident. Unfortunately, when the stock market goes down and clients lose money, the advisor or agent is painted as the villain in the story.
The 7 deadly sins
When the stock market is volatile, here are some mistakes agents and advisors should avoid. You might think: “I sell insurance and these problems don’t apply to me. Ditto benefit plans.” The stock market fits inside retirement plan investment options. Variable annuities often allow stock market participation. Clients realize that and are concerned.
1. Lack of communication. You buy into “Let sleeping dogs lie.” You also think you should not go looking for trouble. There are some clients that always give you a hard time whenever you call. You assume “If they were concerned, they would call me.”
Instead: When the stock market is volatile you should make an effort to reach out to every client personally. It lets them know you are paying attention.
2. Assuming clients don’t read statements. Clients often receive monthly statements showing the part month’s performance. When the stock market has a bad month, it is tempting to think: “I will hold off on calling until the next month’s statement arrives.” Bad months sometimes follow previous bad months.
Instead: You need to assume clients read their mailed monthly statements or open them online. If they are upset, letting it boil up inside them until they initiate a call is a really bad idea. When statements arrive, you should call and confirm they are paying attention. Some might take the long view; others might be going crazy because of short term volatility.
3. Not having an opinion. The previous two points emphasized calling clients. You might think asking “Have you opened your statement?” is enough. Your client will be worried about the condition of the economy or the stock market. They need to hear you know what is happening and their money is important to them. They need direction.
Instead: Your firm has an opinion how things should look six months, a year or five years from now. They have recommendations for how clients could take action. You need to have an opinion.
4. Being short-sighted. Clients might be concerned with “What am I worth today?” They see no end to the world situation, the pandemic or inflation. They are tied to the TV news, which tends to be gloomy. Your client needs to focus on the long term.
Instead: When will your client need their retirement assets? At some point in the future, probably the distant future. Volatility should be seen as an opportunity for long-term investors, not a punishment.
5. Not seeing the other side of the coin. Your client has been complaining about low interest rates for years. Suddenly their wish came true. Rates are rising. Even if the rise were to be short lived, your client could lock in some of those higher rates for the long term.
Instead: They might build a bond ladder. If rates stopped rising and fell back, they would have locked in some higher rates when they were available. If rates continue to rise, they can lock them in when the shortest maturity on the ladder matures.
6. Not seeing opportunities. If stocks are lower in price, this means their favorites are suddenly cheaper. If they are thinking about index funds, the entire market seems suddenly cheaper. Their monthly 401(k) plan contributions are dollar cost averaging their purchases. That is a good first step.
Instead: Everyone wants to buy low and sell high. This might be a buy low opportunity. They don’t need to jump in with both feet, but they might start by committing a little money when everyone seems to be selling. It will be a good talking point at parties.
7. Ignoring history. People have short memories. We think “Past performance is no guarantee of future results” means we are not allowed to look at history. The stock market, interest rates and the economy tend to move in cycles, but we do not know the length of the cycles in advance. When has the market declined before?
Instead: If your client has been investing for a while, they remember previous declines. Things got better. Looking back, your client might have said: “It was obvious things would recover.” What lessons did they learn? What lessons might be applicable now?
No one can accurately predict the future, but it is important for agents and advisors to be proactive. Months from now, your client will remember you had an opinion and offered proactive advice.
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