Advising clients through volatile times.
Canada’s economic future is looking brighter than it has for the past couple of years. Many of the problems brought on by the pandemic have largely dissipated at this point. Equity markets have been inching higher, and the rate of inflation is trending lower. Meanwhile, there’s been some consensus that the Bank of Canada could begin cutting interest rates in the near future. Together, these developments are good news and have put a spring back into the average investor’s step.
Even when economic forecasts appear promising, however, a degree of caution can still be warranted. The future state of the economy is unpredictable, and average Canadians are currently facing some serious financial issues, such as the high cost of living and the highest interest rates in a generation. There are also ongoing concerns about the geopolitical climate in some of the world’s most influential countries, many of which are scheduled to hold elections in 2024 that could generate new currents of economic uncertainty.
During times like this, advisors should encourage their clients to remain committed to achieving their financial goals as originally intended. While people may have difficulty looking past their immediate challenges to focus on long-term plans, advisors play a critical role in helping their clients navigate those challenges. Faced with the possibility that circumstances could arise to cause short-term economic uncertainty, advisors may want to review some of the fundamental principles that are essential to maintaining fruitful relationships with their clients. Consider the following practices.
Identify goals and risk tolerance
Speaking with clients about their financial objectives is a chance to reaffirm goals and gauge their tolerance for risk. Establishing a clear path, tailored to a client’s specific needs, will help them feel more comfortable during periods of volatility. In fact, a 2024 study found that 28 per cent of Canadian investors said “more personalized advice, tailored to my financial goals” was their top recommendation for advisors. This is relative to the 65 per cent of investors who said the main reason they continue to work with their advisor is because their personal situation and preferences are understood and respected.1
Advise and educate
Having educated clients is beneficial to the client/advisor relationship. The more a client knows about the context of economic ups and downs, the more they can relate to the cyclical nature of the markets and accept that short-term instability does not always interfere with long-term financial success. Instability can even present an opportunity to explore different strategies that take advantage of downward trends and bear market conditions.
Review and rebalance
Market conditions can change quickly and without warning. Recent years have seen plenty of examples of this, with varying degrees of intensity. Advisors will monitor trends and try to stay ahead of potential problems but must be ready to pivot and adjust client portfolios in response to market upheaval. A lot can happen over the course of a year, which means reaching out to clients to meet, reassess and promote a simple rebalancing of their portfolio should remain top of mind.
Plan for the long term
Just as major turbulence in an airplane might make you wish you had never booked the flight in the first place, rocky economic times can produce feelings of fear, panic and regret. Advisors are sitting in the cockpit and it’s their job to keep clients calm and focused. In the case of volatility, focus means staying committed to reaching the destination – the client’s long-term goals – regardless of a turbulent forecast.
Communicate
Effective communication is vital to any business relationship. Regularly sharing information will build a stronger partnership with clients, earn their trust and help them feel supported and confident. Purposeful contact will reaffirm that their needs are being addressed, especially during times when they need reassurance the most.
Don’t miss opportunities
During times of notable volatility, markets are susceptible to large swings, and investment gains and losses can boil down to just a few days of being in or out of the market. Here’s a video that takes a closer look at the roller coaster behaviour of the markets.
Some clients may need to continually be reminded of these three key aspects of successful investing:
Staying invested. Trying to time the markets is an unnecessary risk. Trying to chase market ups and down can result in a frustrating cycle of buying high and selling low. Investors will always have reasons to feel tempted to cash in and flee the markets when facing a shaky investing landscape, but the best reason not to is to avoid missing the golden opportunities that emerge when markets surge.
Long-term focus. Markets inevitably rise and fall. Accepting this fact and adopting a long-term perspective can help investors stay the course and avoid the pitfalls that come with reacting blindly or emotionally to a crisis.
Regular purchases. An investing strategy based on consistency can be preferable to risking the investment of large lump sums at specific times. Employing a dollar-cost averaging approach will balance prices out over the long term.
This chart illustrates the resilience and recurring strength of the S&P/TSX Composite Index over the past ten years and confirms the value of staying invested.
Source: S&P Dow Jones Indices. Price performance of the S&P/TSX Composite Index (Feb. 2014–Feb. 2024) For illustration purposes only. The index is unmanaged and cannot be purchased directly by investors.
Avoid damaging behaviour
According to industry studies,2 clients commonly cite the following as some of the most damaging behaviours shown by their advisor:
- Failing to provide a comprehensive breakdown of fees
- Taking too much time to complete tasks
- Using privileged and confusing financial jargon
- Suggesting investment options without explaining all the details
- Recommending investments without taking personal values into account
- Burdening the client with too much paperwork
- Tending to avoid providing holistic financial advice
The more disliked behaviours that an advisor demonstrates, the more negative the impact on the client’s trust.
Talk taxes
Next to losing money, people are generally unhappy with paying taxes, whether on income, capital gains, goods or services. Providing savvy tax advice adds value to the client relationship, since clients may not be well informed about how to apply effective strategies to lighten the tax load on their income and investment earnings.
Test the waters
The financial landscape constantly evolves. Thankfully, advisors have access to technology that offers huge assistance in keeping pace with market performance, understanding what trends are emerging and identifying dangers that might be lurking in the distance.
Embracing technology can help advisors make informed decisions on behalf of clients in real time. Strides in artificial intelligence have made it easier to test simulated market conditions against a client portfolio and measure their potential impact. Stress testing can reveal vulnerabilities under a variety of calculated scenarios and help advisors foresee a range of risks and how to potentially avoid them and protect clients from future disorder.
Offer reliable support
Setting aside the technical aspects of financial planning, advisors must continuously monitor the emotional effect that an unsettling economic situation can have on their clients. Since most people carry an emotional connection to their money and are not above making reckless decisions in times of stress or fear, nurturing a level of understanding and trust is a key component of the relationship.
As service providers, advisors will do well to know and respect each client for who they are and what they are trying to achieve. Encourage them to be open and honest, to express their concerns, desires and dreams, and offer the opportunity to drill down to what keeps them awake most nights so you can commit to tackling it with them.
Reassure relentlessly
In the swiftly moving and competitive world of finance, it takes a lot to earn someone’s business and even more to earn their trust. Maintaining that trust, through thick and thin and with clients’ best interests at heart, is what represents the true value of an advisor. Some clients may need continual reassurance that their concerns are being taken seriously and their financial goals are being protected, especially in times of uncertainty.
An effective advisor is committed to doing what it takes to help clients face their financial future with confidence, conveying that even though it’s going to be a bumpy ride at times, it’s okay, we’ve got this, we can handle this together. Learn more about how Manulife is supporting advisors with important digital advancements, that are delivering faster application approvals and increased client convenience. Consider also sharing this Solutions video with your clients to help them understand the value of your services and advice.
2 7 Faux Pas for Financial Advisors to Avoid – Morningstar
3 Manulife Bank’s Financial Health Survey
4 Scotia Global Asset Management Investor Sentiment Survey
