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CPD: Scaling the wall of worry – a 10-point checklist for communicating volatility

This Best Practice CPD series is published by AdviserVoice and sponsored by Bennelong Funds Management. 

CPD_ scaling worry

The old rules no longer apply

For more than a decade, the Australian economy has, like most others around the world, operated within a low inflation, low interest rate environment. It’s an environment which has seen unparalleled growth in asset values, powering an extended bull market and driving real estate prices to stratospheric levels.

For more than a decade, the Australian economy has, like most others around the world, operated within a low inflation, low interest rate environment. It’s an environment which has seen unparalleled growth in asset values, powering an extended bull market and driving real estate prices to stratospheric levels.

But recently, of course, that’s all changed. For the first time in many years, interest rates are on the way up, as central banks try desperately to rein in inflation. Throw in a war in Ukraine, and the many stings in the extended tail of the pandemic, and there is little wonder why markets are well and truly in a volatile mood.

For financial advisers, elevated market volatility can be extremely challenging, creating a nervousness amongst clients that can sometimes be hard to assuage.

Amplifying that challenge is the fact that many clients, and indeed the vast majority of advisers, are experiencing a high inflation, high interest rate environment for the very first time.

According to figures from Rainmaker[1], of Australia’s 17,000 advisers, only around 1300 have 15 or more years’ experience. That means nearly 90% of advisers have never experienced times like these.

Communicating with clients during market volatility is a foundational responsibility for advisers. It’s where they really start to earn their money. With that in mind, this article will suggest a framework for advisers to use when communicating with clients throughout the rollercoaster ride of volatile markets. Applying this framework will put advisers in a much stronger position to find a silver lining amongst the gathering clouds and emerge from these times with an enhanced reputation and much deeper client relationships.

1. Understand your client’s state of mind

The first step in building your approach to communicating volatility is to put yourself in your client’s shoes. You understand that markets move up and down, and theoretically your clients do too, but that all goes out the window at the first sign of trouble. Empathy is critical.

Here’s what you need to understand about your client right now:

  • their awareness of market volatility has come from the news media talking about movements in the All Ordinaries and Dow Jones indices (which may bear no relation to their own portfolios)
  • if they are like most people, they are inclined to ‘loss aversion’, a behavioural bias which means we feel losses more acutely than we enjoy wins
  • they are probably worried about the impact on the long-term financial goals underpinning your advice
  • their natural response to falling markets is probably to sell.

2. Be proactive in your communication

The most important principle to remember about managing your clients through volatile times is that too much communication is never enough.

Vacuums get filled with rubbish, and the longer you delay communicating with your clients, the more likely they are to create their own narrative about what is happening, its implications, and the necessary course of action.

There are three key reasons to be extremely proactive in your communication:

  1. Proactive communication is good client service. One of your responsibilities is to educate and inform your clients, in good times and bad. They don’t have your level of understanding about what is happening, and they are undoubtedly waiting to hear from you, hoping you can soothe their nervousness.
  2. You need to stop them from selling.
  3. Getting on the front foot will actually save you more work in the back-end. By building trust early, and making it clear you have things under control, you are likely to reduce the number of panicked calls you receive at each twist and turn of the market.

It may be worthwhile prioritising your clients for contact based on your knowledge of their specific circumstances, for example, their lifestage:

CPD article_volatility

To continue reading and receive CPD points, view the original article on AdviserVoice’s website.


[1] https://www.financialstandard.com.au/news/rate-rise-exposes-adviser-knowledge-gap-179795240