March 17, 2020

Punch In The Mouth

Punch In The Mouth
Chad Soileau

“Everyone has a plan ‘till they get punched in the mouth”

  • Mike Tyson

A memorable quote from former world boxing champion Mike Tyson which brings to mind these last couple of weeks in the markets.

Right now, we are all getting the proverbial “punch in the mouth” by the markets.

As markets swing from peak to trough, stress levels are moving in concert as well. For many, the stresses of the market are too unbearable and everyone is looking for an “escape hatch” to jump out of and hopefully land softly.

And with that, the stress comes two-fold for most advisors. Stress from the markets and stress from the client. The combination of the two will often cause many in the profession to make short term decisions that may have long term negative effects.

We’ve been here before, markets will recover and rational thinking will prevail.

But until then, remember that there are lessons to be learned in all situations.

Setting expectations:
Typically, the people that panic the most are the same people that do not have a plan in place to follow for both short and long term events and goals.

Many times, both client and advisor panic and uncertainty can cause knee jerk decisions. However, this can be be mitigated at the onset of a client relationship. The best in this business are very good at setting expectations at the very beginning.

Communication with your client about how an investment strategy will handle both the ups and downs of markets will help ensure that there are fewer surprises should a worst-case scenario occur.

Risk Evaluation:
Many clients will tell you what they think they want and can handle. However, the market turns become unbearable and their “true” risk tolerance will come to light.

As advisors, disclosing risk factors is one thing, but doing a good job of evaluating a client’s true appetite for risk is paramount. Being thorough and asking the tough and uncomfortable questions at the beginning of the client relationship will help everyone make better decisions in the long run.

Leading with planning and goal setting:
When there’s a plan in place, it helps keep both you and the client on track when short term setbacks present themselves. The plan gives you both perspective and guidance, which in of itself will encourage confidence and certainty.

Diversify Diversification:
How well are you diversified? By that, I’m asking about more than just sectors or fund managers. Are your clients diversified in the style of investment management or product strategies?

Looking beyond one way of doing things may be appropriate going forward. A good mix here may be the difference between relatively small losses as compared to substantial losses.

Being Proactive:
Reaching out to your clients on both up times and downtimes can have a tremendous effect on the confidence of your clients as well as your own. Times like these are where an advisor can really prove his or her worth.

Being the first to reach out shows that you are prepared and have confidence in these trying times. And as many of you have probably already experienced, it will also potentially lead to referral opportunities as well.

At the end of the day, most of your clients just want to know that cooler heads will prevail and that you both have a plan to follow. Much like being a passenger on a flight watching the flight attendant during turbulent times, your client is looking at you the same way.

Lead with confidence and remember that times like these are perfect opportunities to differentiate yourself from everyone else and validate your true value to your existing and future clients.