© 2020 Arizent. All rights reserved.

Here’s how to increase AUM amid a market drop

Sponsored by
Register now

When the Dow Jones Industrial Average closed above 20,000 in January, it was big news, even though many wealth managers pointed out that it was just another number.

But that comment didn’t register with many would-be stock buyers.

When the stock market is doing well, investors tend to feel giddy. A rising market seems to foster a feeling that the market will certainly rise some more, even though that doesn’t make a lot of sense.

Of course, at some point stock prices will dive. That begs the question of how ready advisers are for client questions and demands the next time the market plummets.

To fulfill one’s duty as a trusted adviser, have a crash communication strategy ready to execute. Ideally, this strategy will be in place before that next sharp decline occurs.

Advisers’ communication efforts will have a big impact on clients’ confidence and trust.

The difference between advisers who excel during difficult times and those whose businesses suffer lies in how well they communicate. Advisers who do so successfully will bring in substantial new assets.

Indeed, the market's ups and downs can be very useful. Sharp fluctuations provide an opportunity to call clients and remind them that their investment plans are designed to hold up over the long term and that short-term market moves aren’t relevant if there is a prudent course of action.

A turbulent market offers a chance to review clients’ plans, revisit asset allocation and rebalance if needed, or simply to help them see that everything is still on track. In some cases, advisers can even position themselves to receive significant additional assets from high-net-worth clients.

The key to success is having a plan in place and knowing what to focus on so advisers can reach out immediately with the confidence clients need amid an uncertain and challenging environment.

Research by my firm, CEG Worldwide, shows that advisers who maintain frequent contact with clients generate much more satisfaction and loyalty than those who focus mostly or entirely on the financial markets themselves. This client-centric approach leads to more assets under management from those clients, more introductions to ideal prospective clients and ultimately a more successful practice.

During the market downturn of 2001, for example, advisers who focused on client contact rather than investment strategies captured 30 times as many additional assets as their colleagues who focused solely on investments.

This finding has been further reinforced by another survey CEG Worldwide did, which clearly shows that highly successful advisers have more client contact.

Specifically, just 29% of the moderate-income group contact their top clients at least once a month, compared with 59.4% of the high earners, the survey showed.

More than a quarter (27.1%) of the moderate-income group contact each of their top 20 clients just two or three times a year or even less, according to the survey

Among the high-income group, just 8.1% neglect client contact to this degree, the survey showed.

Increasing client outreach is a smart move when markets are volatile. But how should advisers go about making contact in a smart, systematic way that assures clients and gets good results?

Start by calling the top 20% of clients as well as those who will need the most hand holding and those who may be active traders. Advisers might even want to schedule in-person visits with these clients.

Then work down the list to smaller clients and those who are less sensitive to market fluctuations. Remember that even the most rational clients may be nervous or begin questioning their strategy if market-driven events are scary enough.

Assume clients will be worried because of something comes along to remind investors of 2008, they will all be concerned.

Make contacts with these clients the top priority, even if it means devoting a significant portion of the day to them.

Why? It is likely that most affluent clients have multiple financial providers. Many of these others will fail to be proactive and won’t reach out to these clients.

So be the adviser who is there for them. Advisers who focus and act immediately will not only help clients get through a tough period but will position themselves to receive significant additional assets.

Conversely, let’s say clients’ other advisers do reach out to them right away. Their other advisers who fail to do the same risk damaging the relationship and losing assets.

Prepare notes of what to say to each client or group of clients. Be ready to discuss the specifics of the market and the recent events, of course, adding perspective as well as insights from other trusted sources such as the custodian or respected economists and money managers.

That said, don’t focus entirely on the markets or get too analytical and wonkish. The fact is, many clients will simply want to hear from their advisers and be reassured that the sky isn’t falling.

Advisers can remind them of their long-term plan or of the investment policy statement that was carefully created with them, if there is one. Advisers might even remind them of the fact that many investors panicked and moved to cash in 2008 and 2009 and later missed out on a big part of the market rally that followed.

Perhaps most important, let them know that they are still well on the way to meeting their long-term goals. This is a perfect opportunity to strengthen that all-important emotional connection that clients want from their advisers.

And don’t use the market’s bad news to try to sell clients a new product or service. That can damage trust quickly.

Finally, make sure to ask about something personal such as their families, their businesses, any recent vacations they have taken and so on. This tells them that they are more than just numbers and that their advisers care about them as people.

That deeper level of interest can help promote better client satisfaction and loyalty in any environment, especially when times are uncertain. It can also help take their minds off the headlines.

In the end, reaching out effectively to clients right after a major market decline will not only reassure them and help them manage, it will also provide opportunities to capture additional assets and clients.

But be ready to roll.

This story is part of a 30-30 series on strategies to boost your practice. It was originally published on Feb. 9.

For reprint and licensing requests for this article, click here.