Advisers need to prepare clients for market downturns

“Preparation and education” are crucial when discussing market downturns with clients, three local financial advisers have suggested.

Over the past couple of years advisers have increasingly engaged in active conversations with their clients regarding market cycles, which after years of smooth sailing have been hit by fairly rough conditions.

On an upcoming ifa roundtable, focused particularly on global equities, Lipman Burgon and Partners private wealth adviser, Deborah Harbrow, Lorica Partners’ Brendon Vade, and Lifespan Financial Planning CEO, Eugene Ardino, stressed the importance of engaging in open and honest conversations with clients, particularly during difficult market cycles.

“Preparing them is really important,” Mr Ardino said.

He explained that the education process is crucial especially during difficult periods that follow a really good market run.

“Warning them that downturns are part of the process. Some advisers historically have been afraid to have those conversations, and that could be a really big mistake,” Mr Ardino said.

“So, reassurance is important, but so is preparation and education.

“And you find the advisers that are better at that, get less clients that are stressed or that are ringing up complaining.”

Ms Harbrow agreed, noting that “it was a lot easier to do our job when you had positive returns in comparison to now when there are negative returns”.

“But you have to plan this as well, make sure that you have cash reserves to the side. So not selling at the wrong time,” she said.

Also joining the discussion Mr Vade said the adviser-client conversation will also greatly depend on the client’s individual experience.

“For investors who have had a lot of experience … the reassurance message may not be as essential.

“But there are plenty of clients who haven't had the experience of going through these different cycles,” Mr Vade said.

New clients too may need a little more attention, he noted.  

“If they have recently moved to you as an advisor, there's always a bit of a testing time, I think, where they want to know that they're in the right hands, that they've made the right choice. And I think it's difficult for clients to assess, other than market performance, as to whether they're on the right track.”

The global equities roundtable which also boasts Macquarie’s division director and investment specialist, Luis Sarmiento, and Carlo Queddeng, head of managed funds at Providence Wealth Advisory, will shortly be available on ifa.com.au.  

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.