Navigating change with clients
Navigating different life stages and market changes in portfolios can be tricky – but with the right preparation and open communication, advisers set themselves up for an easier journey supporting their clients with expected and unexpected change.
That first conversation an adviser has with a client can manage expectations in terms of the level of communication; whether that is reacting to geopolitical, monetary, stock market events or when investments need to be altered for life stages.
“We communicate as frequently as we can, every month and then during volatile times maybe a couple of times a week, as we did when navigating Covid-19,” says Warren Shute, Chartered Wealth Manager at Lexington Wealth.
When there are anticipated events that could cause change – and therefore client nervousness – communication is key before and after.
“With regards to the Budget, we communicated beforehand, within 20 minutes of the Chancellor sitting down, and then once again after the dust had settled to explain what was going on.”
Advisers also need to be careful to not bombard clients with financial jargon, and “build it like a cake”, as suggested by Katie Volker of Volker Financial Planning.
“Keep it simple and add layers of detail as you work together. As you see your clients’ knowledge and experience develop, and they become more confident and interested in the market, their questions change. We have our regular reviews and if there is a significant market event, I will ring them and be proactive with it.”
Monthly investment newsletters and social media can be useful tools to keep on top of informing clients of important events.
With regards to the Budget, we communicated beforehand, within 20 minutes of the chancellor sitting down and then once again after the dust had settled
Focus on the long-term
Investments will always move up and down and it is important to reassure clients to not make knee-jerk reactions.
“Dramatic events are usually followed by recovery at some point, and clients are usually better advised to try and ‘sit it out’ until this happens,” said Fiona Tait, Technical Director at Intelligent Pensions.
“The vast majority of clients are reassured by our advice and will follow it. It helps that we explain our investment rationale upfront and make sure they are aware that market conditions fluctuate, and their fund value is almost certain to fall at some point.”
News headlines and hearsay can also cause uncertainty, but it comes back down to those initial conversations.
“If they read a headline they are not sure about, or someone said something at the pub about investing in cryptocurrency, my clients are very good at ringing me to discuss. I circle them back round to the original planning meetings and the latest review we’ve had and remind them not freak out,” says Volker.
“We know markets are going to move, we will review your plan and see if we need to update it but let’s not make hasty reactions. That’s really the benefit of the financial adviser relationship. There’s an element of constant coaching,” she adds.
When clients are drawing an income from their portfolio, we recommend 18 months’ expenditure in cash
Life stages
See below for more explanation on aspects to consider around cash and different life stages:
20-30: Young adults
Establishing the foundation of the investment portfolio & pension based on short-term goals (e.g. buying a first home) and long-term goals (e.g. retiring early)
30-50: Family years
Adapting to new needs & life circumstances such as setting up kids' savings pots, family budgeting, changes in income and inheriting assets
50-60: Empty nest
Planning for retirement by ensuring their pension plan is suitable to support their desired lifestyle
60-80+: Retirement
Early retiree: Start using the money saved during accumulation stage whilst staying tax efficient, planning inheritance and long term care during vulnerability stage
Vulnerability stage: Inheritance
Cash can help smooth market events
Cash is an important part of investment portfolios in terms of acting as a safety buffer and being able to access emergency pots. Sometimes the market events can have knock-on effects to people’s lives – redundancies for example – so it is important to have conversations around cash from the very start.
“At the outset we discuss the advantages and disadvantages of holding cash, and how cash savings are ideal for those rainy-day emergency funds. Cash is relevant, and savings and investments are complementary to one another.”
Shute said he prepares clients by getting them to think about upcoming purchases and how long they might need an income for if unable to work.
“We recommend every client has six months’ expenditure in cash, plus any planned expenditure over the next three years,” said Shute. This could be a new car, child going to university or big holiday, for example.
“When clients are drawing an income from their portfolio, we recommend 18 months’ expenditure in cash and then three and half years in short-term bonds, where there is a lot of liquidity.”
Of course, this depends on client and the life stage they are at. Younger clients may want to focus on maximising investments, taking a riskier approach with only a small portion held in cash, while later in life cash takes a more significant role to protect wealth accumulated.