Coaching clients through a volatile market

One of Emily Rae’s clients, a retired woman in her 70s, recently reached out about her portfolio. She was “a little bit worried” about the market conditions as she tracked her portfolio’s performance online, wondering how low it could go.

Rae, a senior financial planning advisor with Assante Capital Management Ltd. in Halifax, said she explained that she couldn’t predict when or how the portfolio would recover.

“But, traditionally, it will come back. And when it comes back, it might come back quickly, or slowly,” she told the client. “The best thing we can do now is take advantage of this negative time and invest slowly over a period of weeks, sometimes months.”

When it comes to managing a client’s emotions during rough markets, Rae said it’s important to truly hear out her clients.

“Their feelings are valid. They’re not imagining things. Their portfolio is dropping,” she said. “[We have] to understand that my level of comfort with the market drop might be different than their level of comfort, and to just really listen to what they’re saying. At the end of the day, it’s their money, and they can do with it what they’d like. I’m just here to be a sounding board and to make recommendations based on what I know.”

For example, the client in her 70s had a fair bit of cash parked in her savings account from a recent sale of a property. The money was just sitting there and wasn’t earmarked for anything in particular, “so it was a really a good opportunity for her to invest,” Rae said. They incrementally moved the money over from the savings account, positioning the client to buy on the dip.

David O’Leary, principal with Kind Wealth in Toronto, also frames market drops in the context of future gains when speaking with worried clients.

“We talk about the fact that when the market falls, that’s the price we pay in order for assets to go up over time,” he said. “The market doesn’t go straight up forever. If stocks just went straight up, they wouldn’t offer the same returns. They would be offering returns like a GIC.”

O’Leary said this reframing can be effective.

“It takes it from, ‘Oh, this is a catastrophe that’s happening to me,’ to ‘This is a necessary part, an ingredient in generating the types of returns that I need,’” he said. “It’s expected. It’s planned for. We created the portfolio to weather these types of storms in the first place. We have a plan for this. And I think [those realizations are] empowering for people.”

Rae said she’s had most of her clients for about 25 years, and thus they’ve seen about three bear markets during their time invested with her.

“They’ve had a lot of experience with market ups and downs,” Rae said.

The downside, she said, is when clients have a higher net worth, like $1 million, and the market is down 10%, “the [absolute] numbers that it’s down are huge” — even if the percentage is the same, which she emphasizes with clients.

Rae used an analogy about flying on a plane to illustrate her approach to calming clients.

“I don’t like to fly. When it’s turbulent, I look to the flight staff to see how their body language is and how their reaction is. And if they’re calm, it calms me,” Rae said. “If I’m talking to a client and go through the math [showing them] ‘10% is 10%,’ it reassures them that I’m calm, I understand this, and everything will be OK. It helps them understand that, ‘This is going to happen; it’s going to happen again.’”

Rae has also reminded her clients of the time and work they put into constructing their respective portfolios and financial plans. Rae likes to take a managed money approach, adding a cash wedge and a stock wedge.

“When a client comes to us, especially a client who is very close to or in retirement, the most important thing is to keep what they have and then have a rate of return on top of it,” Rae said. “[Having an] approach that’s a little bit boring, and a little bit safe and secure, can really make a difference during a down market.”

Rae noted she tends to stay away from “the trendy things,” like cryptocurrencies and cannabis.