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Practice Management

Without a clear client communication plan for downturns, you’ll be missing out on a big opportunity to strengthen your business.

This Practice Management article is intended for financial advisors only (registered representatives of broker dealers or associated persons of Registered Investment Advisors).
 

Do you have a plan in place to reach out to clients the next time the markets plummet? If not, you could quickly find yourself dealing with a group of nervous clients about to make some very bad moves. What's more important: Without a clear client communication plan for downturns, you'll be missing out on a big opportunity to strengthen your business.

It's been quite a ride for advisors and investors since the March 2009 valley in stocks. While many have cheered the new highs, plenty are worried that another crash (à la 2008) is right around the corner. I'm no prognosticator, so I won't tell you whether stocks have room to run or are on the verge of collapsing. But here is something I can promise you: At some point, stock and bond prices will dive. We just don't know when. To fulfill your duty as a trusted financial advisor to your clients, you need to have a "crash communication" strategy ready to execute. Ideally, you'll have this strategy in place before that next crash occurs.

Your communication efforts will have a big impact on your clients' confidence and trust in you. The difference between advisors who excel during difficult times and those whose businesses get hurt is rooted in how well they communicate with their clients. Successful communicators can bring in substantial new assets by following their communications plan. Indeed, the markets' ups and downs can be very useful. They provide you with an opportunity to call your clients and remind them that their investment plans have been designed to hold up over the long term, and that as long as they have set a prudent course of action, short-term market moves are not relevant to their overall performance. A turbulent market offers a chance to review clients' plans, to revisit asset allocation and rebalance if needed, or simply to help them see that everything is still on track. The key to success is having a plan in place and knowing what to focus on so that you can reach out immediately and with confidence during an uncertain and challenging time.

Communication Payoff
Advisors who maintain frequent contact with their clients generate much more satisfaction and loyalty from those clients than do advisors who focus mostly or entirely on the financial markets themselves, according to new research by my firm, CEG Worldwide. A client-centric approach correlates with more assets under management from those clients, more introductions to ideal prospective clients and, ultimately, a more successful practice.

During the market downturn of 2001, for example, advisors who focused on client contact rather than investment strategies captured 30 times as many additional assets as peers who focused solely on investments, prior CEG research found.

Indeed, our most recent survey clearly indicates a connection between successful advisors and greater client contact. The chart on the next page shows contact with top clients occurs far more often among high-income advisors than among their lower-earning counterparts.

Just 29% of the lower-income group contact their top clients at least once a month, compared with 59.4% of the high earners. More than a quarter of the lower-income group contact each of their top 20 clients just two or three times a year (or even less). Among the high-income group, only 8.1% neglect client contact to this degree.

Plan Your Outreach
Preparation is the mother of execution. How can savvy advisors go about making contact in a smart, systematic way that reassures clients and gets good results?

I suggest you start by calling the top 20% of your clients, as well as those clients who you think will need the most hand-holding and any clients who may be active traders. You might want to schedule in-person visits at your office, or at their homes if the clients prefer. Then work your way down the list to smaller clients and those who are less sensitive to market fluctuations. Remember that even your most rational, buy-and-hold clients may begin questioning their strategy if market-driven events get scary enough. Don't skip clients simply because you think they're not worried. If something comes along to remind investors of 2008 (or 2000, or 1987, etc.), trust me—they'll all be concerned.

Make these client contacts your top priority, even if you have to devote a significant portion of your day to them. After all, it's likely that most of your affluent clients have multiple financial providers, and many of these other providers will fail to reach out. By acting immediately, you not only help your clients get through a tough period nbut also position yourself to receive significant additional assets in return. (And if your clients' other advisors do reach out to them right away, you risk damaging your relationship and losing assets if you fail to do the same.)

Be Prepared
Before you make your calls, prepare notes with what you'll say to each client or group of clients. Be ready to discuss the particulars of the market and the recent events. And, of course, add in your perspective as well as insights from any trusted sources you rely on, such as your custodian, other institutions you work with, economists and money managers you respect.

Yet do not get caught focusing entirely on the markets. The fact is, a lot of your clients will simply want to be reassured that the sky isn't falling. You can remind them of their long-term plan or of the investment policy statement you carefully created with them (which I hope you have done; if not, consider working on them), without getting too analytical and wonkish.

You might even remind them that many investors got scared and moved to cash during 2008 and 2009—missing out on the big rally that followed. One example to cite: A study by Fidelity showed that 401(k) savers who continued making contributions and stuck with their asset allocation during the financial crisis saw their account balances grow by 50% from September 2008 through June 2011; savers who fled from equities had growth of just 2%.

Emotional Ties
Perhaps most important, let clients know that they are still well on the way to meeting their long-term goals. This is a perfect opportunity to strengthen that all-important emotional connection clients want from their advisors. And whatever you do, don't use the market's bad news to try and sell clients a new product or service. That can damage trust quickly.

Also ask about something personal—whether their families, their business, even any recent vacations. This tells clients they're more than just numbers to you and that you care about them as people.

That extra interest can help promote better client satisfaction and loyalty in any environment—and especially when times are uncertain. It can also help take their minds off the headlines. Reaching out effectively to your clients right away will not only reassure them and help them to manage during an uncertain time. It will also provide you with valuable opportunities to capture additional assets and bring new prospects to your door.


John J. Bowen, Jr. is a contributing writer for Financial Planning.

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