This content is from: Practice Management

Coronavirus, Pummeled Markets, and the Business Case for Calling Clients

Investors don't just appreciate communication, they pay it forward.

To call or not to call clients? That’s the question financial advisors were debating on social media in the weeks leading up to Monday's collapse.

The S&P 500 finished the trading session down more than 7% and U.S. stocks posted their largest one-day drop since the 2008 financial crisis, making the question all the more pressing.

Some advisors say they haven’t proactively reached out to investors about the coronavirus outbreak and the impact on financial markets. The thinking is if clients have questions or concerns, they will get in touch. And other advisors proclaim they haven’t received any worried calls or messages — their clients, they say, are well-educated and prepared for bouts of volatility and down markets, even those stemming from a black swan event like this.

The number of known coronavirus cases continues to grow. As of Monday morning, there were 586 cases confirmed by lab tests and 22 deaths in the U.S., according to a New York Times database tracking global confirmed cases. Globally, at least 113,700 people have been infected and more than 4,000 have died. Most of the cases and deaths have occurred in China.

But while some advisors treat these times like just another day, others are doing the opposite. Kathmere Capital Management, a King of Prussia, Penn.-based RIA that manages over $1.1 billion (about $450 million in private wealth and $650 million in retirement plan services) is an example. The RIA send clients a bi-weekly email. But it also sends additional emails in response to events like the coronavirus and the market impact.

It’s common for advisors to proactively communicate with clients, even if that only means sending a brief email reminding them their portfolios, in the long run, will be okay and their financial plan is not in jeopardy.

Still, regardless of the camp advisors fall in, they all might want to consider communicating more. A recent report from Cerulli Associates suggests it could directly help them grow their business.

While researching how affluent investors viewed their advisors’ performance during the financial crisis, Cerulli found more than half (56%) of investors rated the preparedness of their advisor favorably. The most-cited factors investors reasons for the good reviews were “accessibility and understanding their risk tolerances.”

“These results underscore the importance of not only maintaining open lines of communication with clients, but also proactively contacting them during the most volatile times. By establishing the expectation that portfolio volatility is a probable part of their long-term investment lifecycle, advisors can intrinsically strengthen their client relationships and transform the event into an asset-gathering opportunity,” Scott Smith, the director of Advice Relationships at Cerulli, said in the report.

Growing their business is a top priority for advisors and referrals from existing clients account for the bulk of new clients and assets. Employee referrals, business connections, and traditional marketing add less, according to Schwab’s benchmarking study that surveys more than 1,300 RIAs.

“In the wake of the 2008-2009 market downturn, those advisors who were most active in communicating these expectations received an elevated level of referrals from their clients whose friends and family were not receiving that level of outreach from their own advisors,” the report said.

Referrals aside, advisors should be cautious they aren’t too confident in their client relationship and still think about keeping up with client communication. Markets over the last decade have made investors much wealthier and more satisfied. Clients’ satisfaction with their financial advisors has found support at the 80% level since 2014, compared with 61% in 2009, according to Cerulli.

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