Peter Eckerline Discusses Providing Advice to Clients During Volatile Times

Peter Eckerline understands that during a time of crisis in the markets, financial advisors play a critical role in helping their clients navigate the turmoil. While it is a very stressful time for everyone, including advisors, it isn’t a time to make decisions that could affect their clients for years to come. Here are some steps that financial advisors should consider taking:

Stay Calm and Rational

Lead by example: It's essential for financial advisors to stay calm themselves and not panic. Their demeanor will help reassure clients who may be anxious or fearful.

Focus on long-term goals: Advisors should remind clients of their long-term financial goals and help them avoid hasty decisions based on short-term market movements. Stay the course is usually good advice, and so is " follow your plan.

Reassess Clients' Financial Plans

Review risk tolerance: A market crisis may prompt advisors to reassess clients' risk profiles. It’s a good time to confirm that their asset allocations are still aligned with their risk tolerance and long-term goals.

Consider rebalancing: If markets have significantly fluctuated, portfolios may no longer be in balance with clients’ desired asset allocation. Rebalancing could help to maintain the right risk exposure. This is something that should be done on a regular basis, but clients are more inclined to do it during a market downturn.

Provide Education and Context

Educate clients about the market cycle: Advisors should help clients understand that market crises are part of the natural market cycle, often followed by recovery. Knowledge can reduce anxiety. You have the knowledge and should share it with them.

Discuss historical data: Sharing historical examples of how markets have rebounded after crises may give clients a better perspective on the situation.

Evaluate Portfolio Diversification

Diversify assets: Crisis periods often expose the vulnerabilities of portfolios that lack diversification. Advisors should assess whether the portfolio is appropriately diversified across asset classes, sectors, and geographies to help mitigate risk.

Alternative investments: Depending on the crisis, certain alternative assets (such as gold, bonds, or even cash) may act as a hedge. Discuss with clients how the assets don’t all move in the same direction.

Review Liquidity Needs

Check for immediate cash needs: Advisors should ensure that clients have sufficient liquid assets to meet short-term needs, reducing the likelihood of needing to sell investments at an inopportune time.

Cash buffer: In some cases, clients may benefit from holding a larger cash buffer during uncertain times.

Communicate Regularly with Clients

Proactive communication: Frequent check-ins during volatile periods can help reassure clients. Advisors should provide updates on market conditions, their strategies, and any adjustments made. You can’t overcommunicate during a time like this. It is also a great time to add new clients since many advisors aren’t communicating, and you will stand out if you are.

Transparency: Advisors should be transparent about potential impacts on portfolios and possible recovery strategies. Communication is again the key.

Avoid Knee-Jerk Reactions

Don't panic sell: A common mistake during market crises is panic selling. Advisors should avoid making sudden moves based solely on fear, as it may lock in losses and harm long-term growth.

Strategic decision-making: If adjustments are necessary, these should be strategic and thought out, not emotionally driven.

Tax-Loss Harvesting

Minimize tax implications: Advisors can help clients take advantage of any potential tax-loss harvesting opportunities. Selling securities at a loss to offset taxable gains can reduce tax burdens and improve after-tax returns. It might make sense to sell a stock that is down and move the funds into another that is down but may have more potential to recover faster.

Focus on Client Mental and Emotional Well-being

Provide emotional support: Financial advisors should not only act as financial guides but also as emotional support during stressful times. Helping clients manage their emotions around money can prevent rash decisions. Share stories from another downturn and things you did to get through it in the past.

Set expectations for recovery: Advisors should help clients understand that recovery may take time, but historically, markets tend to bounce back after downturns. No one knows when that will be, but we can look at the history of previous downturns.

Stay Informed

Stay updated on market developments: Advisors should stay informed about the broader economic and market context so they can offer well-informed advice and anticipate potential changes.

Monitor government and fiscal responses: If the crisis is economic in nature, understanding the response from government bodies and central banks (such as stimulus packages or interest rate cuts) will be crucial in advising clients on possible market movements.

In summary, Peter Eckerline notes that during a time of market crisis, financial advisors should provide steady guidance, ensure clients stay focused on their long-term goals, and help mitigate risks without making drastic, reactionary moves. The advisors that do that will cement their relationships with clients and provide great value.