Coaching Clients in Times of Crisis

Coaching vs. Counseling

Helping clients stay calm as markets roil is an essential part of being a financial advisor, but the real way to differentiate your service is to give clients a framework in which to be calm. The COVID-19 situation is different from past crises because it touches not only investment portfolios, but all aspects of clients' lives. The ground has shifted dramatically, so the advising model you've used in the past may be inadequate or counterproductive today.

From hindsight bias, which makes otherwise sensible people feel that events in the past were more predictable than they actually were, to confirmation bias, which makes us pay attention only to news and information that confirms what we already believe to be true, investors' natural instincts are currently pushing them to make the wrong decisions.

These biases are always a hindrance, but in times of market volatility, they become a serious liability for both investors and advisors. Acting out of panic right now could leave vulnerable investors without a nest egg, without the means to send their children to college, retire or fulfill their lifelong dreams.

Just as the coaches of Olympic athletes push their charges to keep their goals in mind while training, so must financial advisors now lead by reminding clients of their true financial purpose. Investors who have a purpose for their money — be it retirement, leaving a legacy for their children or through charitable initiatives — will find it much easier to set aside their fear and anxiety and follow their advisor in looking toward the future.

Understanding the Unpredictable Nature of the Markets

How can advisors combat their clients' hardwired biases? During these turbulent times, it's important to walk clients through the academic principles behind their portfolio construction. Consistent coaching is key, but so is having a strong investment philosophy to fall back on.

According to the Efficient Market Hypothesis, everything currently known about the market is already baked into the prices. While investors may believe it's possible to outperform the market by picking the right stocks at the right time, advisors need to help clients understand that stock picking, market timing and track-record investing is the Wall Street equivalent of gambling with their money.

The cold, hard truth? No one can predict the markets. While building diversified portfolios based on principles such as the Efficient Market Hypothesis, Three-Factor Investing and Modern Portfolio Theory and taking the time to rebalance may not be as sexy or exciting as trying to pick the next winning stock, it's essential for advisors to stick to their guns and encourage their clients to do the same.

Things are going to be upside down for a while, but we can see a path forward by looking at the past. Historically — be it the housing crisis, the tech crash or the '87 market crash — it takes an average of 111 days for the market to fully recover from a hit, and low GDP growth does not predict low future stock returns.

As we move through the upcoming weeks and months, communication is key. Coach your clients by providing a framework that will help them understand their own emotions, biases and true financial purpose — along with your core investing principles. Educate them on why relying on market timing, track-record investing and stock picking is a losing game and help shift their focus away from the daily gyrations of the market and toward the long term.

In the midst of the pandemic, advisors play a critical role in helping clients understand they have more control than they think they do.

Mark Matson is the founder and CEO of Matson Money, a wealth management and advisor coaching firm based in Scottsdale, Arizona. Matson Money works with 541 advisors and 33,000 investors across the U.S.