Advising in times of uncertainty: Education is key, say professionals

In recent months, economic markets have been plagued by significant uncertainty. The Russian invasion of Ukraine on the heels of a multi-year pandemic was among the factors that led to an ongoing period of high inflation, which in turn inspired rapid interest rate hikes to combat inflationary pressures.

Furthermore, the tech sector has recently experienced massive layoffs worldwide following a period of premature expansion, and in the face of uncertain economic conditions.

Combined, these events have culminated in the collapse of three banks in the US, with the most prominent being the Silicon Valley Bank (SVB), which had grown to become the 16th largest bank in the country. And while the damage is still being assessed, reports are suggesting some European banks may be on shaky ground. 

Consequently, while Australians are naturally feeling apprehensive about their financial portfolios, advisers are being challenged to review their approach to anxious clients. 

Speaking to ifa, chief executive of Verse Wealth, Corey Wastle, noted, “life is inherently uncertain”.

“There are always variables within someone’s personal life that causes them to worry or stress, but also a lot of things outside of their control,” Mr Wastle said.

“I think at this moment, things outside of their control are beginning to affect how they feel about their financial life, and questioning whether they’re making the right choices or should be doing things differently.”

He added that creating a clear plan centred on clients’ goals, which they fully comprehend, provides them with a sense of control and empowerment, reducing their likelihood of reacting to external factors beyond their control.

“I think tip number one for people feeling uncertain is make sure you’ve got a plan and then you’re going to be focused on the things that are within your control. All the things we’re experiencing now aren’t going to be permanent, and ultimately aren’t going to be the things that derail a long-term retirement plan, as an example,” Mr Wastle said.

“The failure of Silicon Valley Bank last week is an example of that. There will be some short-term volatility, uncertainty and plenty of headlines, but it will be inconsequential to most long-term goals that almost all clients have.”

Leigh Fernando, director of strategic advice – wealth at BlueRock, highlighted that even the most catastrophic events, such as the global financial crisis, become mere blips on a long-term graph when viewed in perspective.

“If you look at the ASX or the Dow or something like that, that little blip in 2008 would have been a great time to buy as long as clients have a really strong cash buffer,” Mr Fernando said.

“The rest of this calendar year 2023, we’d expect to be volatile. There’s more clarity around it going down rather than it going up. So, with a long-term view, this could be another one of those blips in investment markets.”

Glen Hare, co-founder and financial adviser at Fox & Hare, whose client base is predominantly younger, noted that his clients are aware of the inevitability of significant market volatility during certain periods.

“But they also understand it’s a long-term play. Our members do not reach out to us when the market tanks,” Mr Hare said.

“We spent a lot of time with our members, educating them up-front, even when markets were going gangbusters and the perception was that they could do no wrong. The conversation was that they will go down and then they will recover, things move in 10-year cycles.”

Similarly, Mr Wastle reinforced that while fluctuations are unavoidable, ensuring that clients comprehend that market volatility is a natural component of their investment journey is key.

“We give them plenty of education and reset expectations consistently because more than anything, risk is just a measure of knowledge. If you educate them and stick with expectations, they get through the experience with less stress.”

Expanding on client education, Mr Wastle stressed that advisers should prepare their clients for these inevitable downturns from the onset of their investment journey. 

“Advisers do a lot of things to improve the finances of clients. But one of those things is making sure that their investment behaviours or natural instincts in difficult times don’t lead them to short-term decisions that end up costing them a lot of money in the long run and cost them a lot of choices and freedom,” he said.

Ultimately, Mr Wastle reiterated: “The job isn’t done in the middle of a downturn, the job is done before the downturns regarding setting the expectations and making sure that they don’t get any surprises in terms of how far their portfolio, based on their asset allocation, could fall.”