Abrupt market downturn sees advisor-client talks boom

New questions during a pandemic

Turbulent economic times created by COVID-19 – the 2020 global pandemic that is pushing long-running bull markets into bear territory – puts client communication at the top of the “must do” list for financial advisors.

During a sudden downturn in the economy – especially when investors were sucker punched after enjoying record-breaking stock market gains – advisors must now be available to answer an onslaught of clients’ questions about current conditions, the economic outlook, and what – if anything—needs to be done right now to manage their investments. Advisors who neglect such communication risk losing their clients once the economy stabilizes.

Several studies indicate one of the top three reasons investors leave their advisors is ineffective client communication. Poor or inadequate communication can lead to poor investor decisions, as well as cause clients to feel that their advisor is not paying enough attention to them or to their investments.

A December 2019 study by research firm YCharts revealed most clients said they do not hear from their advisors as often as they would like. The firm stated 64 percent those surveyed said their advisor “infrequently” or “very infrequently” contacted them. Sixty-six percent said more contact would give them more confidence in their advisor, while 75 percent said it is important for advisors to anticipate issues and contact them in advance. The study also found 86 percent of respondents said their advisors’ communication styles were important, while 88 percent said it was a factor in whether they remained with the firm.

While YCharts research is timely, its data suggests nothing new. “Client communication is a major gap in today’s financial advisory business,” according to a 2014 Financial Planning Association’s “Trends in Client Communication” research study. The FPA stated advisor-client communication needs to be meaningful; follow well-defined service standards; be cost-effective for the firm; and let clients know what communications to expect. “Only 30 percent of all advisers indicate that they review and reinforce service standards with their clients, on an on-going basis,” FPA added, while 44 percent communicate standards when the client begins working with the firm.

A May 2019 study by the Financial Planning Association, Investopedia, and Janus Henderson Investments found a 64 percent gap between what advisors thought they were addressing as clients’ top concerns, versus what clients perceived. The research paper also found that 44 percent of advisors surveyed said they found “communicating effectively with clients during volatile markets” to be somewhat stressful or very stressful. While those talks may be stressful for the advisor, failure to communicate is often stressful for the client.

One of the biggest mistakes many advisors make is simply not determining how often clients want to be contacted. Face-to-face meetings should only be scheduled if the time spent by both parties will provide meaningful value. Depending on client preferences, advisors can communicate by text, email, telephone, and social media. When advisors do not communicate effectively, clients may come to see the relationship as entirely transactional, and decide to change advisors.

“Nothing beats the impact of a one-on-one meeting with a client,” said Danielle Woods, financial advisor and owner of Propel Financial Advisors in Maryville, Tennessee. “We strive to do those no less than once per year, whether over the phone or in-person.”

drew quoteDrew Blease, president of Blease Financial Services in Tucson, stresses “open communication -- and lots of it -- along with an open door policy where the advisor is available for all questions or concerns regarding the clients’ finances on every level.” He added, “Advisors and their clients need to work together as a family to help the clients achieve their goals and remain satisfied.”

Customer service and communication ranked among the top three factors when choosing an advisor, according to the YCharts study. For regular updates, the research showed 75 percent of customers prefer email; 29 percent text messages; 26 percent newsletters; and 26 percent face-to-face sessions. Only two percent of those surveyed said there were not interested in hearing their advisor’s perspectives.

“Advisor communication deficiencies over the last decade may have been forgiven due to the rising tide effect in the market,” Sean Brown, CEO and President of YCharts, stated in announcement of the study results. “Effectively communicating will become critical for advisors when the market turns bearish. Having a process-oriented approach to client outreach will enable advisors to better meet client needs through effective, timely communications.

A 2018 data study by Hartford Funds found that 73 percent of advisors surveyed prefer face-to-face meetings for communicating with clients and prospects. Only 12 percent said they found video services such as Skype and Facetime useful for those meetings. Technology can provide a useful tool for maintaining contact between personal meetings. Among advisors who use social media to interact with clients and potential customers, 74 percent favored LinkedIn, followed by Twitter with 45 percent and Skype at 43 percent.

Although advisors contacted by Hartford strongly prefer in-person meetings, 64 percent said they interact with clients on at least a weekly basis. Seventy-five percent of respondents said they hosted group meetings at least annually to discuss investment trends and market updates. Also, 38 percent of advisors said they intend to communicate with clients more frequently in coming years.

Silver1000x667Joel J. Garris, CFP, president and chief executive officer of Nelson Financial Planning, Inc., and Nelson Investment Planning Services, Inc., in Orlando, said his firm has served its community for more than 30 years through a weekly radio program. “Today, this program is converted to both audio and video podcast formats, and different topical video segments are created each week,” he said. “This regular communication provides immediate and up to date information that allows investors to make more informed financial decisions.”

Garris added, “One of our core values is knowledge, and we regularly impart that to the community at large. Unbiased financial information is the key to smart investment decisions.”

A solid communication strategy begins with a thorough discussion when the client first comes to the firm. “In our initial meeting with a potential client, we discuss their history, experience, and relationship with money,” said Michael Silver, CFP, of Baron Silver Stevens Financial Advisors in Boca Raton. “We want to understand both good and bad experiences.

We discuss how money has played a role in their life during childhood, and all the way through to their current age. What we find is many of our clients’ relationships with money are based on their experiences growing up, or possibly an impactful event during their lifetime.”

Better communication also supports the ongoing need to educate clients. Helping customers become more financially literate becomes particularly important during rocky economic times, as failure to understand current events and coming trends can be distressing.

“The late discount clothes magnate Sy Syms used to say, “An educated consumer is our best customer’,” said Gary Scheer, RFC, CSA, a financial advisor and author in Morristown, New Jersey. “That’s why my team and I lend out books and other relevant materials to clients to educate them with information that enhances their existing knowledge base – regardless of whether they’re a seasoned investor or a new beginner. Imagine how much of a better place our country would be if people had the proper financial education.”

Woods of Propel Financial Advisors agreed. “We can't say enough about the importance of education. Our advisors never stop learning, and we pass that information – from financial basics to current laws that create changes – onto our clients through in-house articles, social media posts, and educational seminars.”

The first quarter of 2020 market upheaval caused by COVID-19 may be particularly disturbing for millennials, whom studies show actually prefer more frequent communications that older clients. Millennials favor social media, blogs, emails, website charts, and other digital content over face-to-face contact or phone calls.

Michael M. Pompian, CFA, founder and CIO of Sunpointe Investments in St. Louis, said, “Many millennials were in college during the great recession and studied it.” However, they were not investors during that period, so they did not “experience the emotion of seeing their portfolios decline drastically in value.” Younger clients have operated “in a perpetual bull market and have not experienced managing portfolios in poor investment environments,” he continued. “I encourage millennials to prepare for volatility – not to expect the next 10 years to be like the prior 10 years – and to ensure the application of behavioral finance.”

julie quote“Effective, consistent communication is the bedrock of the advisor-client relationship, and a strategic imperative in human-centric advising,” Julie Genjac, managing director of strategic markets at Hartford Funds, stated when the 2019 study was released. “As advisors thread the needle and both communicate more frequently and meet in person, it’s essential that they embrace firm-approved digital alternatives (like video chat) that allow for more regular, face-to-face interactions.”

During good economic times and bad, investors of all ages and portfolio sizes want to hear from their advisors regularly. They want personalized, meaningful information and guidance that reassures them that their advisors are looking out for their interests and addressing their concerns. Experts say technology can complement a firm’s communications strategy, but automation cannot truly replace the human relationships that advisors build through regular, personal communication.




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