Survive and thrive in the next bear market
Helping clients maintain composure in the face of market volatility pays long-term dividends for your firm.
- Realize that these types of corrections and bear markets are out of your control. Clients will understand this if you deal with the situation by remaining calm and in control. Don’t beat yourself up over what has already happened. Though client emotions and markets will always be unpredictable, it is how you handle both of these that matters most.
- Your investment models will likely have given back some portion of their gains. Realize no strategy works perfectly in every market. Traditional investment approaches—like buy and hold, classic asset allocation, or some variation of the modern portfolio or the efficient frontier theories—typically experience losses of 50 percent or more in a full-blown bear market. Hopefully, you will have a more dynamic and risk-managed approach to client portfolios in place. But even the most sophisticated and time-tested active strategies may suffer some degree of loss in times of market turmoil.
- Understand that your confidence, your leadership, and your guidance will get you, your team, and your clients through the difficult days ahead. Take the time to get your head together first, get clarity about what you must do to survive, and then lead with compassion. You aren’t the only one with fears.
- How can we create value for our clients in this challenging environment, as measured through their eyes? What will give them peace of mind?
- What potential dangers threaten the future of our firm and how can we eliminate them now? List them and choose actions to neutralize them. Making this list and brainstorming solutions will give you renewed confidence.
- What new opportunities do we have now because of this event? As an example, some of the best clients of other firms will now be far more receptive to your message about active investment management. How will you capture these opportunities?
- What happened and why?
- What does it mean?
- Will I be OK?
- Look into the future. Ask yourself where you want to be five or 10 years from now. Focus on that future reality to make the right decisions now. The future brings hope. You need this perspective of a bigger and better future, now more than ever.
- Restructure if necessary. What expenses can you defer or drop? How can you maintain stability and profitability in this new environment?
- Consider your employees. If your employees are fearful and insecure, it will hurt your business. They need your leadership now, more than ever. They need your constant communication that they too will be OK and secure.
- Understand the opportunities in front of you. It isn’t all negative news. Many clients of other firms will find themselves disillusioned and without the strong leadership they desire. When asset-allocation strategies lose money, minds open to other approaches. What can you do to capture that opportunity? How can you best reach them?
- Offer free “second-opinion reviews” to friends of your clients. It is much easier than asking for referrals. People desperately need guidance in the aftermath of a market meltdown. Make this offer in many ways and many times. If you are already employing risk-managed active strategies for clients, your story will only be stronger and your firm’s value proposition more differentiated.
David Lucca was a partner at Rhoads Lucca Capital Management for 25 years, managing investments through all types of market conditions and rapidly adding $150 million under management. He focuses now on advisor growth coaching and investments in operating businesses, real estate, and royalty interests. See his profile here.
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