Down markets, not downtime

In a time of an unprecedented global financial crisis, record unemployment, and when almost everyone’s investment portfolio is experiencing substantial losses, it would be understandable if advisors felt pessimistic about their prospects.

“Not so,” says Susan Neal, a regional director at Investors Group. “This kind of market provides an excellent opportunity for advisors. During difficult times people are looking for good advice and guidance. Now more than ever advisors need to service their clients as they will find the clients are actually more open minded to the idea of proper financial planning.”

Client retention is not only the mark of a good advisor but also key during downturns in the market and the way to keep your clients is solid financial planning. Neal says advisors know there will be upturns and downturns in the market and if the advisor and the client have created a plan based on the four cornerstones of financial planning — protection of income through insurance, maintaining short-term reserves for emergencies, providing solvency at death, and investing in a proper balance of fixed income and equity products — then clients will feel more comfortable with their investments.

With markets struggling to recover from the sell-off, some advisors are being inundated with calls from panicking clients looking for reassurances about their investments. It may be tempting to avoid the calls but Neal says “the worst thing for an advisor to do during these uncertain market conditions is to hide or not communicate to their clients.”

Clients often have multiple accounts with various advisors or institutions and naturally compare the level of service, remembering which advisor offered the best guidance or advice and possibly, a second opinion on the investments they have with the advisor that didn’t return their calls.

For those advisors who are doing all of the right things and have little or no client turnover, now might be the right time to grow their client base. During uncertain market conditions the most successful advisors not only focus on client retention but also asset gathering. Clients are less likely to leave their advisors when markets are up and their portfolios are making healthy returns.

There are many options an advisor can offer a disgruntled client who feels like she’s received less than stellar financial expertise. First. look at the portfolio and determine if it’s the most cost-effective portfolio for the client. An advisor who can save the client money on fees will have a major advantage, especially when returns are expected to be lower than normal.

A simple example would be offering F-class funds in place of A-class, which would also provide greater transparency on advisor compensation. F-class funds typically have MERs a full percentage point or more lower than conventional mutual funds and the investor may be able to write off the advisor’s fees at tax time.

Another asset gathering strategy is to revisit the client’s risk tolerance and investment goals. Typically during bull markets, a client’s psychology is different, and he takes on more risk to participate in the high returns he believes everyone else is achieving. Sometimes this puts pressure on the advisor to invest in higher-risk products because the client only considers the upside. At current market levels, you may need to revisit the clients’ KYC and rebalancing may be necessary.

If the previous two approaches don’t work, review the portfolio to ensure tax efficiency. This includes making sure the portfolio is taking advantage of the latest government incentives, or using tax-loss selling to its best advantage.

As the markets begin to stabilize and eventually recover from these seemingly dark days, the advisors who have worked the hardest on client retention and asset gathering will be poised to reap the biggest rewards.

Philip Dale is a Toronto-based freelance writer.

(05/06/09)