Last year, our team relaunched its financial planning internship program with local colleges in San Diego. The purpose is to help students interested in financial planning get a glimpse into our career and industry so they can decide if it’s the right path for them or not. This summer, our two interns are getting hands-on experience by helping us prepare our clients’ financial plan review materials and attend the client meeting. What’s also unique about our program this summer is the word “recession” has been unavoidable.
The National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, and that lasts more than a few months.” While the NBER hasn’t officially declared a recession, many financial experts have started to say we may already be in one.
As financial planners, our clients look to us to shine a light on uncertain times. They simply want to know their investment assets are safe and, more importantly, be reassured they have enough money saved to last their lifetime. As they sit in on client meetings, our summer interns are witnessing how financial planning gives people peace of mind during market volatility. On separate occasions, they noted how many clients were concerned about the markets at the beginning of our discussions and then noticeably relaxed at the end of the meeting.
Here are three ways to help clients feel better about today’s market volatility:
Ask clients how they’re feeling and actively listen to what they’re saying.
At the beginning of client reviews, it’s best to address the elephant in the room: the stock market. It’s easy to get whiplash from all the ups and downs recently, and it especially doesn’t help that the news headlines provoke emotions. Before diving into your market outlook, gauge how your clients handle today’s news by asking questions. How do they feel about the stock market? What are their thoughts on inflation and rising interest rates?
While some clients keep a strong pulse on what’s happening with our economy, the majority seem to be more concerned about how everything going on may impact their financial goals. This is particularly true for recently retired or about to retire. It is essential to open the conversation and allow clients to speak freely and actively listen to their responses. By listening, we’ll know if we should plunge into a market outlook stick to a brief overview.
“It’s times like these when financial planners feel more like therapists than advisors. Sometimes it’s as if we’re managing clients’ emotions more than their investment portfolios.”
Our interns were surprised by how many clients just wanted to know they would be okay rather than know exactly what was happening with the stock market. It’s times like these when financial planners feel more like therapists than advisors. Sometimes it’s as if we’re managing clients’ emotions more than their investment portfolios.
Frame your conversation around financial planning.
Most individuals misperceive their investment portfolio as their financial plan. As financial planners, we know that’s not the case; a comprehensive financial plan includes investments and risk management, spending plans, estate planning, and so much more. Only about a third of Americans have a financial plan in writing, so it’s not surprising that many people are anxious about today’s market environment.
Even when clients have a proper financial plan, they sometimes lose sight of the holistic view as it’s difficult to ignore the overwhelming influx of market headlines. That’s why framing your conversation through financial planning and showing how their investment portfolios fit into the overall plan is essential.
I’ve noticed that individuals who have not gone through the planning process seem to have a much higher level of stress nowadays than those who actively review and update their financial plan. It is compelling to show clients that through planning they’re on track for their goals despite what the markets are doing. Financial plans provide clients with peace of mind. Now is an excellent opportunity to start the planning process for those clients who have not shown interest or procrastinated in the past.
Remind clients of long-term investment strategies and look at the glass half full.
Fidelity supposedly came out with a study from 2003 to 2013 that showed the best returns were “either dead or inactive.” No one has ever seen the actual research — but whether it exists or not, the meaning behind the notion is sound. Everyone knows “buy low, sell high,” yet many forget this adage in bear markets. When markets get tough, many people have difficulty staying the course and liquidating their accounts.
During client review meetings, it’s helpful to run hypothetical reports of their portfolios going back 20-plus years. While past performance doesn’t guarantee future returns, we may be able to use the historical data to reflect on periods of high volatility, i.e., the early 2000s and 2008. Some clients may question how the last two decades are relevant to today’s market. While so much has changed since the late 1990s and will continue to evolve moving forward, there will always be market volatility.
Like all things in life, how you look at the big picture matters.
For instance, many people view interest rates rising as a negative, but could rising interest rates be a good thing? Think about it. Interest rates have been historically low over the past 10 years. On June 30, 2012, the 10-year Treasury yield was 1.67% and generally fluctuated between 1.67% and 3% for a decade with even lower rates over the last couple of years. So bonds haven’t earned much income during this time. Now in July 2022, 10- and 30-year Treasury rates have risen just above 3%. While we may experience a drop in clients’ portfolio values as interest rates rise and bond prices fall, higher yields also mean our clients may finally start earning meaningful income from their bond holdings.
When we reviewed the bond positions in our model portfolios in early 2021, many wholesalers suggested we integrate high-yield bonds to juice the income. High-yield bonds are junk bonds. Many investors understand bonds to be safer assets, so we held off on that suggestion last year. From our optimistic perspective, rising interest rates will bring yields to appropriate levels. As a result, bonds will behave as expected: Even if their prices fluctuate, they offer a steady fixed-income stream.
Showing clients comparative analysis can help them appreciate your efforts and understand the importance of stock diversification. For the most part, all asset classes are down year to date, but the underlying investments in your portfolios may have significantly different returns. Don’t assume clients recognize that growth stocks are likely to perform very differently than value ones. Showing clients that your strategies keep volatility lower in their portfolios versus other indexes can give them peace of mind. It also shows your value.
Therapists and Role Models
In times of uncertainty and market volatility, financial planners have an opportunity to distinguish themselves from those who are not financial planners. We can take the pressure off clients’ portfolios by focusing on the more important matter — their financial plan.
Clients have multiple outlets to get their news updates and market outlooks. Most of it tends to be doom and gloom. It’s daunting, especially as one gets closer to retirement or is already living off their retirement nest egg.
I’m excited our interns are getting hands-on experience in today’s market and economy. Many people have preconceived notions about what financial planners do, and our interns are discovering financial planning is much more than numbers and managing money.
While financial planners provide investment advice, our main purpose is to help individuals with their personal, professional, and financial goals. A comprehensive financial plan is essentially a life plan. And with that, financial planners often take on a quasi-therapist role as clients seek reassurance and peace of mind during market uncertainty.
As a young advisor myself, it is rewarding to train the next generation of financial planners and share what an amazing career opportunity this is, even in what may seem like tough times.
Amie Agamata, CFP, is based in San Diego, Calif., with clients across the U.S. Her team’s business mission is “Working together to achieve financial success through understanding, education, and action.” Amie is the NexGen President-Elect for the Financial Planning Association (FPA) nationally, a member of the FPA Retirement Income Planning Advisory Council, and a committee member of The American College Alumni Council.