In the face of a market downturn - or outright craziness, portfolio losses, and economic uncertainty, financial advisors and wealth managers are often faced with a challenge: how to effectively prepare and deliver client communication.
It’s no wonder why. Effective communication during these volatile times is critical to retaining clients, ensuring that they stay aligned with their investment strategy, and managing their expectations about future investment returns. It’s not an easy task, but it’s perfectly possible if done properly.
This blog post explores the importance of client communication during a bear market and how tools like InvestSuite’s StoryTeller, Robo Advisor, and iVaR can support financial advisors in handling investor reactions and risk management proactively and reactively.
What is a bear market: Understanding bear markets and investor psychology
A bear market occurs when the prices of securities fall by 20% or more from their recent highs, often fueled by a mix of economic factors such as inflation, recession, and shifts in investor sentiment. During these times, market volatility (to the downside) becomes more pronounced, leading to increased anxiety about investment loss and portfolio losses.
As we can currently notice, Trump’s tariffs have had a significant impact on the overall stock market. By imposing tariffs on imports from key trading partners, particularly China, all of the sudden uncertainty puts its mark on global trade relations. This uncertainty has led to market volatility as investors grapple with the potential long-term economic consequences, including higher consumer prices and disrupted supply chains.
Tariff impositions, hikes, reversions and the general uncertainty around the USA’s next moves have created general uncertainty for the markets.
This is understandable.
Indeed, if stocks are valued on discounted future cashflows, how is one supposed to value an Apple stock if one can’t reliably forecast if an iPhone 16 sold in the USA in September will be sold for $600 or $2500 dollars?
With the changes in Tariffs, on Monday you may have expected Apple to sell 150 million iPhones in the US in 2026, on Tuesday 80 million, and on Wednesday 30 million. And the following week’s news might make it all go back to “normal” or imply that Apple needs to plan for massive CapEx to on/nearshore all of its manufacturing.
Forecasting is getting hard.
And it’s natural that investors may feel a little lost.
Furthermore, investor sentiment has often shifted between optimism and concern, as markets respond to news of trade negotiations or tariff escalations, affecting both domestic and international stock performance.
From a behavioral finance perspective, investors’ decision-making is heavily influenced by emotions, and a market crash can trigger knee-jerk reactions like panic selling. This behavior often goes against previously-stated long-term investment goals. In such conditions, clients may feel compelled to adjust their portfolios impulsively or demand frequent updates. As a result, financial advisors need to manage these emotions while delivering clear, concise investment information and advice that reassures clients and helps them stick to their strategy.
Top 5 Tips for Financial Advisor on Client Communication During a Market Crash
Effective client communication during a bear market is vital for several reasons:
Mitigating Emotional Reactions
Investors’ emotions often cloud their judgment, leading to hasty decisions that may hurt long-term goals. Clear, transparent communication from financial advisors can help calm these fears. Your role is to help them see through the “fog of (trade) war”, and to remind them to “zoom out”.
Explaining Volatility and Risk
It goes without saying that it’s essential to explain the causes of market volatility, its implications for their portfolios, and how it aligns with their investment strategy. This can also involve talking about political and economic outlook, so clients have a clearer understanding of the broader context.Building Trust
Regular, empathetic, and informative updates during times of bad performance can strengthen the relationship with clients. But for that to work, you need to have communicated at other times as well. When clients feel heard and supported, they are more likely to stay loyal and maintain their investments even through difficult times.Managing Expectations
In times of economic uncertainty, it’s important to manage clients' expectations about portfolio losses and investment returns. Explain that short-term downturns are part of the natural market cycle and remind them of the long-term growth potential of their investments.
This is why we suggest the following actionable financial advisor tips on client messaging during a market downturn:
Be Proactive with Updates
Reach out to your clients before they come to you. Regular communication about the market’s performance, portfolio status, and any necessary adjustments to their strategy can help build confidence and trust. Align with your client and establish a frequency that is comfortable to them.
Educate on Behavioral Finance
Help clients understand how emotions, like fear and greed, can drive market decisions. This can empower them to make more informed choices during market volatility.
Reaffirm Their Long-Term Goals
Revisit their long-term financial goals and financial planning strategy. This is a good time to remind them that their portfolio is built for the future, not for short-term market movements.
Simplify Complex Data
Use easy-to-understand investment reports that clearly explain market movements, portfolio losses, and strategies for risk management. Clients appreciate transparency, especially during uncertain times.
Provide Context, Historic Context
Help clients understand the broader economic picture and explain historic economic trends. This will reassure them that volatility is not the end of the world, but a part of the natural cycle.
How InvestSuite Can Help You Communicate Better With Your Clients While Managing Risks
InvestSuite offers several powerful tools to help financial advisors and institutions (because at the top we always talk about advisors) manage the trickier parts of the market cycle. From human-centric risk-metrics to intelligible, trust-building platforms and engaging communication and education tools.
StoryTeller transforms complex data into comprehensive reports, allowing financial advisors to communicate performance, in a reassuring, compelling and engaging way, even during market downturns. With StoryTeller, you can provide personalized reports that inform your clients about why their investment behaved the way they did, while giving enough context to frame the message just right.
Our Robo Advisor solution assists in providing personalized, automated financial guidance that is constantly updated based on market conditions. It helps clients make well-informed decisions without feeling overwhelmed by the volatility. By optimizing their portfolios and offering proactive suggestions, Robo Advisor allows clients to see how their investments are managed and align with their long-term goals, especially during a market crash or market downturn.
StoryTeller can also be integrated in Robo Advisor to provide even more context and explanation to the investor.
The iVaR (InvestSuite Value At Risk) risk measure is designed to optimize portfolios while minimizing the depth, frequency, and duration of drawdowns. iVaR-managed portfolios tend to have shorter and less severe drawdowns, which help in keeping investors from making rash decisions out of fear. With iVaR, financial advisors can maintain client engagement by keeping clients above the "telephone line" — that critical drawdown level that often prompts clients to panic and call their advisor.
Retaining Clients and Building Long-Term Relationships
A client meeting during a bear market should focus on (re)building confidence and emphasizing the long-term value of their investment strategy. It's not about reacting to short-term portfolio losses, but reassuring clients that their investment strategy is sound. Using tools like StoryTeller, Robo Advisor, and iVaR can help you maintain transparency, limit gut-feeling reactions, educate your clients, and ultimately retain them during challenging times.
By helping your clients understand their investments, manage their expectations, and stay calm during turbulent times, you create a foundation of trust. Clients who feel well-informed and confident in their advisor's approach are far less likely to abandon their investments when negative performance occurs.
Conclusion
Communicating effectively with clients during market downturns is essential for financial advisors to maintain strong relationships and retain clients. Tools like StoryTeller, Robo Advisor, and iVaR offer valuable support in managing risk, simplifying communication, and improving client engagement. In an environment of economic uncertainty, providing timely, clear, and supportive advice is key to helping clients navigate volatility and stay focused on their long-term investment goals.
If you want to know more about our solutions, don’t hesitate to contact us. We will be happy to explore how we can help you stay ahead.
