Communicating with clients during a crisis

A mix of high inflation, rising interest rates and a slowing economy has marred the investment outlook but, surprisingly, low investor sentiment can sometimes be a good sign. When expectations are at such a low level, it may only require the actual data to be slightly better than expected for a stock or other investment to rally.

A recent example of this is Netflix shares. Netflix published its figures showing that it had lost a million subscribers compared to the previous quarter. However, analysts had predicted that Netflix may lose more than two million subscribers in this period, causing the share price to jump when these results were released. This is because investors expected subscriber loss figures to be significantly worse.

As fund managers, we acknowledge that the economy is slowing and it’s likely that some profits may fall. Despite this, it’s our job to reassure clients that their portfolios are in safe hands, even in times of volatility. Often, volatility comes with opportunity, so communicating this to clients is key.

Short-term pain for long-term gain

One of the first points to emphasise to clients is that investing is a long-term process and usually happens over a lifetime. As a result, investors will experience numerous highs and lows, and bear and bull markets in their time. When the market is volatile, there are opportunities to enhance long-term returns by buying assets on the way down. However, this doesn’t make the losses in the short-term any more comfortable to experience. The key to managing these fluctuations in the market is balance. At Equilibrium, we are constantly rebalancing our portfolios by buying on the way down and selling on the way up to manage risk.

Communicating these efforts to clients is crucial, so they are confident in the actions being taken. This is especially important for newer clients who may not have experienced such a volatile period since they began managing their money with an advisor. Longer-term clients will likely have worked through volatile periods before and will have the reassurance that their financial planner has previously successfully navigated these markets.

Respond to individual client needs

Clients will undoubtedly react differently to the crisis, so it’s important that advisers are able to provide tailored advice and respond to varying concerns. Factors such as a client’s view of risk, their experience of investing, where their money is, and when it needs to be accessed, will all influence their take on the situation, so a blanket approach is unlikely to prove effective.

Transparency and visibility are key; clients don’t want to be left in the dark. Advisers need to be open about what they’re doing to mitigate risk and balance portfolios and ensure that they are able to answer client queries about this. To communicate this at Equilibrium, we hosted an investment briefing at a nearby venue, which was followed up by a series of videos for those who couldn’t attend as well as condensed written articles. We wanted to ensure that all of our clients had the opportunity to access the necessary information to put their minds at ease and understand how we are responding to the challenges.

Manage expectations

Whilst economic uncertainty is set to remain in the near future, it’s easy for clients to get wrapped up in thinking it will never end. As we’ve seen numerous times, this isn’t the case and on the rollercoaster that is investment, there will always be ups and downs.

To help to improve investor optimism, advisors should share past examples of how bear markets have recovered and emphasise that whilst there may be unavoidable losses now, in the future, there is still vast opportunity for long-term gains. Encouraging clients to have patience and avoid making impulsive decisions to withdraw their money means that they’re more likely to benefit further down the line.

It could take something as small as inflation data showing that price increases are slowing or that the economy is proving more resilient than expected to improve investor sentiment and create a catalyst for the market to rally. Therefore, maintaining optimism, whilst also communicating the variety of possible scenarios and outcomes to clients, is crucial to managing expectations.

Whilst uncertainty is likely to be a recurring theme for some time, financial advisers have a pivotal role to play in easing the concerns of their clients, communicating how they’re tackling changing circumstances and offering clear, tailored advice to those entrusting them with their hard-earned savings. Not only does volatility open doors for longer-term gain, for advisers, challenging periods offer an opportunity to develop a deeper level of trust with clients, building on existing relationships and creating new ones as people seek a guide through these turbulent times.