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Practice Management

Do stock market swings mean new opportunities for financial planners?

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

Fifteen years ago, I was a first-year associate at Goldman Sachs. Like most new advisors, I was preoccupied with searching for new clients. My manager, Josephine Linden, had a single requirement of every financial advisor in the office: Any day the Dow dropped more than 200 points, we were required to call every client in our book. These past few trading sessions have given advisors plenty of opportunities to call our clients.

Before the days of managed accounts, advisors had to dial clients for every trade. While this type of connection is now the horse and buggy of our industry, there also were some benefits. A traditional brokerage relationship requires constant communication with your clients. In those days, it was not uncommon to reach out to certain clients daily with an update on the day’s research reports.

Fast forward to today.

Many advisors have managed accounts and TAMPs, where the trades are being handled by third-party managers. There are also discretionary accounts, where there is no need to confirm trades constantly. While this business model is more efficient, it becomes easy to turn your back on some clients.

Not only has our business model became low-touch but we also have had extremely calm and serene financial markets. U.S. equities delivered positive returns in every month of 2017—a feat that has not happened since 1958. Neither have we experienced material volatility since the "flash crash" of 2010.

Had you relied on my Goldman manager’s advice, you may not have called some of your clients in more than a year... until now. We are in the midst of dramatic volatility. One day, the Dow first posted its single-largest point decline in history. Then it notched its best day since 2016. What a great time to call clients.

Robo advisors promote the fact that they take emotions out of investing. But are their clients devoid of emotions? I think not. Whether professional investor or layman, it is impossible to watch the 1,600-point intraday drop in the Dow and not feel something. Clients need reassurance. Some need hand-holding. They know what they are supposed to do, but will they actually do it? Will they have the fortitude to stay the course? Many admire Warren Buffett, but few clients have his stomach for risk.

This is where competent and confident advisors shine. We provide that needed gut check, that reassurance that comes from knowing the client’s most intimate personal details. Clients look to us not only to be a steady hand on the portfolio but also as a therapist and voice of reason. Our job is to refocus our clients on the things that matter most: their families, their charities, and their goals.

What did those early 200-point down-day phone calls sound like? At first, they were nervous recitations of facts and data points designed to calm ourselves as well as the clients. After some practice—in 2008, I had plenty of opportunity to make these calls—the Dow became an afterthought. It became a routine opportunity to check in with the client. The 200-point drop was no longer the focal point of the discussion; it was more like a reminder bell that sparked a conversation and prompted me to deepen my client relationships.

Let’s face it, no one wants to discuss gloom and doom all the time. Our clients care about much more than the daily fluctuations in the market, which in the long run will prove to be inconsequential. They want confirmation that they will be OK. And that the sun is still shining. And that their Social Security, pension, or dividend check won’t bounce.

There is one more benefit to a market correction that most seasoned advisors will appreciate: it’s a great opportunity to land some new clients! Some advisors call it a “wallet-share” opportunity, but I view it as a “mind-share” opportunity. Volatility creates uncertainty and fear in clients and prospects. This is a great time to reach out to the prospect who got away, especially someone who was satisfied with a current advisor simply because the performance was positive.

Let’s not kid ourselves: In a stock market that has gone up since March 9, 2009, it has been one of the easiest times in history to be a financial planner. However, with some financial turbulence, some of the less market-savvy among us may find themselves exposed. And their clients will begin to ask around.

What will they be looking for? An advisor who communicates with their clients on a regular basis. Someone who is reassuring and calming on the 1,600-point down-day or the inevitable 3,000-point down-day. Someone who has a track record of building portfolios that can successfully weather the storm. I do not suspect they will be looking for a robot.

—by Allan Boomer
Allan Boomer is the managing partner and chief investment officer of Momentum Advisors in New York. He co-hosts a weekly radio show on SiriusXM Ch. 126, which focuses on wealth building and entrepreneurship. Follow him on Twitter @MomentumAdvice.


The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

The information contained herein has been provided by sources other than Lord Abbett which are believed to be reliable; however Lord Abbett cannot guarantee the accuracy or completeness of this information.

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