Volatility Ahead:
How to Make Sure Your Clients Don’t Lose Sleep

Staying the course when volatility rears its head seems to go against human nature. Investors can be their own worst enemy, buying and selling at exactly the wrong time. One of your important roles as a financial advisor is being a behavioural coach to your clients, preventing emotional decisions that may undermine long-term financial goals.

It’s not an easy job, and there’s no one-size-fits-all solution. Each client brings a different background, personality and perspective to the table. Here are three different ways to help your clients cope with volatility and sleep better at night.


lifeboat drills

Take your client through a series of hypothetical scenarios that see them losing incrementally more money. How do they feel about a 10% drop in their investment? What about a 20% decline? If they lost half their money, would they stay invested? Would they consider buying more amid market turmoil, or would the instinct to flee overtake them?

Many investors jumped ship when the market lost half its value between 2007 and 2009. The market handily recovered, but at the time some people could not stomach seeing the value of their investments plummet, so they redeemed.

The most successful long-term investors understand the importance of sticking to their financial plans regardless of short-term fluctuations. If nothing about your plan or time horizon has changed, your investment strategy should be kept intact too.

Practicing with clients to see how they will react when their confidence is tested prepares them (and you) for inevitable downturns. If they find it too difficult to stay in the boat, now is the time to find that out, rather than when panic sets in. Paint as vivid a picture as possible to make the drill feel authentic: frame the discussion in dollar terms, not just percentages, to show “real life” losses. You want to drive home the fact that volatility, however extreme, is an inescapable fact of investing.


Overcoming the 5 Big Investor Challenges in Volatile Markets


Reframe volatility as opportunity

Treating volatility as a positive – and necessary – ingredient in successful long-term investing contradicts the usual narrative about downward market movements. While stock price drops can hurt in the near term, they provide attractive entry points for long-term investors. Remind clients that the lower their entry price, the higher their potential return. It can be a chance to buy stocks when they are “on sale.” Short-term shifts in a company’s stock price are not necessarily indicative of changes in the underlying business.

Sometimes investors lack understanding of what they hold in their portfolios. Help your clients recognize that a stock is more than a piece of paper, and actually represents an ownership stake in a viable business.

Despite media hype and hearsay, volatility when properly harnessed is more fairy godmother than bogey man. Beyond soothing, this is the attitude your clients should embrace to increase their likelihood of doing well with their investments.


Talk it out

Reaching unnerved clients who have shut down communications may be a matter of inviting them to talk about their concerns and then truly hearing what they have to say.

Lead with probing questions like, “How are you handling the market swings? I want to know what’s on your mind.” Forget economic data or market platitudes. As they vent, be sympathetic and resist the urge to “fix” their problem. Paraphrase comments back to them, avoiding technical jargon so that you can connect on their level. Your job is to listen for questions and address what your client is interested in knowing, versus what you believe they need to hear.

Expect that panicked clients will have shorter attention spans – their minds are racing, making it difficult to focus. Too much detail will be lost on them, so keep your side of the dialogue short and to the point. Your goal is to get them to talk more openly about their stress. Doing so reassures clients and increases your value as an advisor by forging stronger bonds with them.


Overcoming the 5 Big Investor Challenges in Volatile Markets