Brace your clients for volatility

Given the rough ride that stock markets have subjected investors to over the past few weeks, Canadians are bracing for a full year of market volatility – a reality that financial advisors should welcome rather than fear.

According to a recent survey by Toronto-based Bank of Montreal (BMO), more than half of Canadian investors (53%) expect volatility to remain or worsen in 2016. Yet, almost the same percentage (48%) still expect their portfolio values to swell.

The survey also found that 54% of survey participants are feeling influenced by volatile markets. So, given that people are prepared to hunker down and brace for the worst while hoping for the best, what can you do?

Plenty, says Dan Hallett, vice president and principal with Oakville, Ont.-based HighView Financial Group. Get ahead of concerns and contact clients as a good first step, he advises: “This is one of those times to reach out. Sometimes, people just want to hear your thoughts; that you know what’s going on and that you are keeping an eye on their portfolio.”

That doesn’t mean you have to approach your clients with an intricate plan or strategy to deal with stock markets caught in the bear’s swooping claws.

“Hopefully, you have some words of wisdom,” Hallett says. “They don’t have to be words of comfort. But if you demonstrate that you are on top of things, that could be comforting.”

Today’s bear market is markedly different from past swoons, he notes. Instead of a relatively rapid decline of 20% from the market high, the current slide has been relatively slow, having started in the autumn of 2014. This gradual drop may be one of the reasons Canadians are less alarmed than in past slumps, particularly the scary plunge of 2008-09.

Waiting out volatile markets is not an option for advisors, says Amy Dietz-Graham, a portfolio manager with BMO Nesbitt Burns Inc. in Toronto who works with high net-worth investors: “Volatility isn’t new. And with volatility, we are going to experience higher highs and lower lows.”

You can deal with client concerns about market uncertainty best by being open and forthcoming, she adds: “Knowledge is power, and we have the luxury as an advisor of looking at this stuff at all hours of the day on behalf of our clients. So, our job is to get in front of our clients and let them know what they are invested in and why they own it, so that when they go through periods of volatility, they are comfortable.”

Such periods of market uncertainty are the best times to contact clients, Dietz-Graham stresses:”Now is the time to be talking to clients to say, ‘Based on the financial plan that we did, we have planned for these types of events; we knew that there were going to be ups and downs’.”

Dietz-Graham is not surprised by the results of BMO’s survey, which found that investors are resigned to volatility, seeking safety and are more diligent about monitoring their portfolios. In fact, half of investors are interested in safer investments or are exercising extra caution and checking their portfolios more often.

“Clients aren’t calling us in a panic mode,” she says. “Most of them have been with us through 2008-09. They just want to understand what is going on and get some advice from us.”

The BMO survey also found that 89% of Canadians have some amount of savings or investments, and mutual funds remain the most popular product type for 52% of investors, followed by stocks (39%) and guaranteed investment certificates (37%). Two-thirds of investors turn to financial professionals at least once a year, with 26% doing so at least once every three months.