In the face of global uncertainty, the best service that financial advisers can deliver their clients is not to attempt to predict what will happen in markets, but rather to help them plan for what can happen. While uncertainty can never be eliminated, it can be navigated.
This capacity to communicate to clients that they have a plan to help them deal with whatever markets (and life) throws at them is one of the greatest value-adds advisers can possess. It is not clairvoyance that we are selling, after all, but clarity and structure and confidence.
Recent Experience
Just look at the past three years or so. We have faced a global pandemic, the biggest land war in Europe in decades and the resurgence of inflation to its highest levels in 40 years. On financial news reports, the phrase “markets hate uncertainty” comes up constantly.
Yet the cumulative return from Australian shares from early 2020 to mid-2023 is more than 26% or around 7% annualised. The cumulative return from developed markets outside Australia is more than 40% or around 10% annualised. Not bad given what we’ve been through.
It’s a reminder that even amid severe uncertainty, there is opportunity as an investor. Of course, that doesn’t necessarily make it easy for clients, who don’t experience life in the long term, but day to day. So we need to develop strategies to help them live with the uncertainty.
Recognising Anxiety
This can start with recognising the anxiety they are feeling. It is understandable to feel stressed in the face of what has been happening in recent years. But that’s why we develop a strategy for clients, to get them through tough times. Dealing with the complexity is precisely what we do.
A second strategy is to communicate to clients that markets are designed to handle uncertainty. Prices instantly build in new information to incorporate changing expectations. Think of what happened in 2020 when the pandemic hit and also how quickly things turned a few months later when vaccines were developed.
The message to clients from this is to let the markets do the worrying for them and then to focus instead on things they can control. That comes down to how much they can save, how much investment risk they are willing to take and how they allocate their assets.
A critical talking point to convey is that while the future will always be uncertain, the quality of the decisions they make doesn’t have to be. They have a plan that accounts for the inevitability of tough times and one that they have decided they can live with. And if there were no uncertainty, there would not be a premium available for investing in risky assets.
“This Won’t Last “
Another strategy I have seen work is to reinforce the transitory nature of events, both good and bad. If the client is excited about bull markets, caution them: ‘This won’t last’. Equally, in bear markets, the message is exactly the same: ‘This won’t last’.
Use the ‘ACE’ framework for anxious times. In this case, the ‘A’ stands for acknowledging how they are feeling. “These are uncertain times and the anxiety you are feeling is quite understandable.” The ‘C’ stands for clarifying what they are saying. “You are concerned that the economy will go into recession and your portfolio will suffer.” The ‘E’ stands for explain. “Markets are forward-looking and the bad news is already in the price. We have a plan to get you through both good times and bad times.”
The most anxious clients in the face of uncertainty are usually the ones who compound the stress they are under by constantly checking the news on their devices. This is an opportunity to reinforce that the day-to-day news is just noise. What matters for markets over longer horizons is signal. Your job is to ignore the noise, which is priced in anyway, and tune into the signal.
Tell the clients that the agenda of the media, by necessity, is measured in hours or days, while the clients’ agenda is measured in years. From there, you can go back to the idea that the worrying is best left to markets, who price news in real time.
Five Simple Messages
None of this is to downplay the impact that tough markets can have on your clients, but your job as an adviser will be immeasurably easier if you reinforce these five simple points:
1. Uncertainty is a fact of life. But we can manage that by having a plan.
2. Markets are designed to handle uncertainty. Let them do the worrying for you.
3. Market timers inevitably end up buying high and selling low. So stick to your plan.
4. The media wants to monetise your attention. So don’t give it to them.
5. Focus on what you need and can control. Discipline is an under-rated asset.
At the end of the day, uncertainty and investing go together. But the returns on offer are what is on the other side of that. While a market decline may not feel good, clients can avoid reacting emotionally by having a plan they feel comfortable with and which they agree upon in advance.
As advisers, we can’t predict what will happen. But we can help clients prepare for what can happen. Understanding the difference is the way of living with uncertainty.
Find additional resources to help you and your clients live with uncertainty and learn more about how Dimensional can help you elevate the client experience here.
Paul Turner Heads the Adviser Group at Dimensional Australia, a global asset management firm which has been working with financial advisors for more than three decades in helping people reach their goals.
