New research from Hartford Funds found that when it comes to anticipating and preparing for a potential bear market, financial advisers and investors are not exactly in sync.
While 89% of surveyed advisers claimed that they had discussed preparing for a potential bear market with their clients, less than half (43%) of investors working with an adviser reported having had such a discussion. What’s worse, 56% of investors working with an adviser couldn’t even identify a bear market as a declining stock market.
This data indicates a troubling disconnect between financial advisers and investors with regards to bear-market readiness, and could suggest that advisers and investors are not communicating effectively. The good news is, knowing about this disconnect and possible pain point presents an opportunity for financial advisers to share valuable insights with their clients and improve their interactions.
By providing proactive and personalized counsel, financial advisers can help their clients prepare to navigate a potential market downturn, while simultaneously earning their trust and demonstrating commitment to their best interests.
Start with the basics
Investors should understand what a bear market means and why it matters to them. Chances are, they are getting their information from news headlines, which are designed to grab attention, but can also incite panic. Advisers should reach out to their clients before the sensational headlines hit, to explain what the true definition of a bear market is, what investments could be at risk, and how a bear market differs from a recession. Where possible, be specific to their investments and clarify how their portfolio has been constructed to weather market corrections.
Share some history
Advisers can also calm investors by providing informed insights about bear-market trends, their frequency, and their average duration. Bear markets are normal and temporary, and advisers can make that point by looking to the past. We’ve certainly been in bear-market territory before, and markets have rebounded, so rely on real-life examples to show investors that market fluctuations are to be expected, and that downturns aren’t forever.
Focus on the positive
Being in a bear market doesn’t mean that markets won’t have good days, so it’s not all doom and gloom. Advisers should continue to remind clients of their long-term investing goals and their progress towards those goals, and explain why staying invested could benefit them in the long-run. Use facts and figures to show them how they might profit when the downturn eventually shifts to an upswing.
Skip the lecture
Rather than simply tell clients about bear markets, offer them empirical resources to help the concepts stick. Find brochures, videos, websites, graphs, and other multimedia tools that are designed for and speak specifically to investors. Interactive learning resources, and a variety of them, might be more likely to stick than a lengthy, jargon-heavy explanation.
Make it personal
One single message may not resonate with all investors, nor does it feel authentic. What’s critical to someone in retirement is likely quite different from someone with school-aged children. When discussing how to prepare for a bear market, it’s important to know the audience and what their individual priorities are. Advisers should tailor their examples to the individual, providing anecdotal evidence based on the client’s goals, family situation, stage of life, etc. Understanding how a bear market might affect them personally will likely sink in more and have more of a lasting impact.
Investors often just want to be assured that they have support and are understood, so it’s important that advisers express concern when communicating with clients. This is even more important during market fluctuations, but it can be difficult to gauge whether investors are really hearing and understanding what their adviser is saying. If advisers communicate with their clients in an engaging, educational, and personalized manner, not only will they help prepare them for market volatility, but they may also be laying the groundwork for a stronger, more trusting relationship.
John Diehl is senior vice president, Strategic Markets, the Hartford Funds, and a registered representative of Hartford Funds Distributors, LLC.
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