Events come and go, process endures

As summer starts turning into fall and I contemplate the recent volatility in financial markets, the same thought keeps going through my mind: events may come and go, but solid processes endure. At first glance, that may seem trivial but think about what a process is: a series of steps or events that lead to a result.

It is in this context that I think process has deep meaning, both for navigating volatile financial markets and, more broadly, for helping your clients deal with the economics of retirement. I’ll return to that in a moment. First, let’s look at the idea of process in the context of volatile financial markets.

Many of the individual events that affect markets can be fit in to a larger process. Think back to the fall of 2008. To put it mildly, the global financial crisis was not a happy time. All of the problems were being revealed – problems that most of us hadn’t known existed, let alone how serious they were. When speaking to clients at that time, I began to talk about an adjustment process. This adjustment process consisted of three stages: first, the revelation of what the problems were; second, governments and central banks debating what the solutions might be; and third, the applications of those solutions.

Each time, I pointed out to audiences that the adjustment process would be difficult, but it would have an outcome and that outcome would be more positive than many were thinking at the time. I think that prediction has largely come true, despite the current problems around government debt and deficits in Europe and the United States and slowing global economic growth.

More recently, I have suggested that the various actions by European governments to deal with fiscal problems are also part of a process toward a coordinated European fiscal policy – a long and rather tortuous process, but a process nevertheless. The same could be said for events connected with various attempts to deal with the U.S. deficit and debt situation and related events such as the S&P downgrade. The fact that there appears to be a process toward solutions to difficult economic problems doesn’t guarantee the process will ultimately be successful. But I do think it helps investors place the problems in a longer-term context – something that may help them think in terms of a long-term investment process.

Using the concept of process can help your clients deal better with market volatility. A well-thought-out investment process or plan can remain in place through both market and life events. It can help provide an anchor in a market storm. Process is dear to my heart, as it is to all my colleagues at Fidelity. Process is a core part of our culture. Especially in times of market volatility, we remind clients time after time that our investment professionals have a proven investment process and they stick to it. This doesn’t mean our portfolio managers don’t react to significant economic, political or market events. They do. But through thick markets and thin, through the volatility and uncertainty of 2008 and 2011, they stick to the process. It pays off in the consistency of investment returns.

I’ve been using the term “process.” The term “framework” might also apply, but by nature, frameworks are static. Process implies a framework that has dynamic qualities, and that is what long-term investment or retirement income plans should, and need to, have. In addition to the very specific content of both, emphasizing the word “process” to clients is intended to do two things: first, to shift clients’ focus away from market volatility, over which none of us have any control, and toward the aspects of their investment and retirement plans that they can and do control. And second, we are trying to get clients to understand that despite the coming and going of market-related events a sound investment plan is valid no matter what the markets are doing on any particular day at any particular hour.

In short, we are encouraging clients to understand that market events come and go; the investment process endures.

As with many aspects of caring for clients, it helps to have done the groundwork – to set the process in place – before a market event occurs. I am convinced that a client will find it easier to have, or gain, perspective about a given market event if the possibility that such events will occur has been discussed well before it actually happens.

I am sure that you understand that much of the value you bring to your clients derives from process. You only have to consider the construction of long-term investment and retirement income plans to see it: how old is the client; what level of risk are they comfortable with; what is the client saving for; how much money will be needed, and when? The answers to these and other questions are part of the process of formulating a plan. Going through a consistent planning process with your clients will help determine whether action is necessary when something happens in the markets.

I realize you have heard this all before. But many of your clients – and people who aren’t not – either haven’t heard it or aren’t listening. Results from the annual Fidelity Canadian Retirement Survey show that year after year, only about 25 per cent of Canadians over the age of 45 have a retirement income plan, whether they are retired or not.

As an advisor, you understand the value of proactive client communication when markets are volatile. Our survey confirms the value of reassuring your clients before their worries drive them to contact you. Having the process – the long-term investment and retirement income plans in place – makes it much easier to carry out that proactive communication. Being able to explain current market events will be much easier if you have formed a base from which these conversations will flow.

My final argument for putting an investment process in place for every one of your clients is that the process of resolving the European deficit and debt situations, the U.S. budget deficit and global economic growth problems isn’t close to being over. I do believe solutions will be found for all three; however, the market volatility associated with the process of getting to the solutions may be with us for a while yet. I believe it is better to deal with the reality of what may lie ahead, and to have much more satisfied clients as a result. After all, process will endure.

Peter Drake is vice-president, retirement & economic research, for Fidelity Investments Canada. With over 35 years of experience as an economist, he leads Fidelity’s research efforts in examining retirement in Canada today.