As a recurring surge in COVID-19 cases threatens the Philippines’ recovery from its pandemic-induced recession, Russel Taningco, a three-year MDRT member from Iloilo City, Philippines, shares what she has learned from supporting clients who are feeling stressed and fearful about current market conditions.  

How do you prepare your client or encourage them to have the right mindset for investing? 

Being a financial advisor is not just about setting sales targets, hitting them, formulating strategies, and carrying them out. It is also about encouraging clients to have the right mindset, which is essential in their short-term or long-term prospects as investors.    

A relationship built on trust is crucial, as I believe that my clients do not care how much I know until they know how much I care for them. I want to make them feel that I am there for them, not just for the business, but to help them long term during the life of their policy and their investments.   

What’s your best financial advice to your clients during a bear market? 

During this time of volatility, the best financial advice is to be calm, stay invested, be patient, and, most importantly, have a plan.  

The extreme stress caused by constantly monitoring their funds isn’t worth it. I advise my clients to be patient. Experience has taught me that a bear market tends to be shorter than a bull market. Historical investment performance has a lesser impact in terms of losses than the potential gains during a bull market. Most of my clients’ investments have grown over time despite short-term volatility. Recovering from paper losses is possible once the market bounces back.  

I encourage my clients to have a plan to leverage opportunities. They have to take advantage of market dips by averaging costs to add to their investments regularly, and they could buy more units for the same amount of money when prices are down. My clients should strike a balance between equities and bonds on their portfolios. 

How do you handle it when a client’s risk appetite doesn’t match their capacity or needs? 

A good client-financial advisor relationship has to have open communication, facilitating a free-flowing exchange of ideas. After reviewing sensitive private information, I would typically assess my client’s risk tolerance. It may be true that my client’s desire to take risks is high, but their ability to handle it sometimes does not match, so I factor in personal circumstances, assets and liabilities, among others.  

For instance, an older client who is near retirement age doesn’t have the same degree of risk appetite as a younger person because when the investment value drops, the former does not have the luxury of time to wait for the market to bounce back, unlike the latter, who has age and time on his side to recover from losses. I guide my clients on understanding their assets and liabilities to help them determine if their status would permit them to have the kind of risk appetite they desire. Clients with high assets and low liabilities can handle risk better than those with higher liabilities as their liquidity would affect their investment decisions. Lastly, I evaluate my clients’ mental and emotional ability to handle risk. As much as we would like the performance of our clients’ investments to be beneficial to them, they should be prepared for uncertainties. If they are risk-averse, I suggest they build up their investment portfolio by positioning on the less risky investment facilities such as government securities to be assured of a steady movement over time. 

How does a financial advisor manage clients’ worries and expectations in an economic slowdown? 

Open and constant communication with my clients is critical.   

When clients’ emotions are high and influence their decision-making, I provide guidance. The first thing that often comes to their minds is to talk to their financial advisor to confide their worries. I am there for them not only during good times but all the more during bad times.  

Leveling expectations and being gently upfront from the very beginning are crucial as resolving things is a give-and-take process. Clients need to see the overall picture and understand the investment cycle process, and they need to have realistic expectations moving forward. 

How do financial advisors plan for bear markets to avoid the worst impact for clients? 

Bear markets are a fact of the investment cycle. Financial advisors should help clients plan to avoid the worst economic impact.  

We should watch out for economic developments, such as a declining GDP, political instability, high unemployment rate, lack of investor confidence, among others.    

A financial advisor should be proactive and recommend a portfolio diversification immediately to clients when a bear market is imminent to decrease exposure in volatile equities and increase holdings in bonds. If clients are uncomfortable even with minor losses in equities after diversification, another option is to switch totally to bonds because their prices often move in the opposite direction of stock prices. Bonds are an essential component of any investment portfolio because of the stability in their prices.  

Even if a bear market strikes fear among clients, there are still opportunities to take advantage of, such as cost averaging. Clients should maintain a good liquidity position because having plenty of cash allows them to regularly buy unit prices at bargain amounts. Be calm and prepare to ride the ups and downs of a bear market. If they still feel uncomfortable, have an exit plan in place. Financial advisors can only give advice, recommendations, and strategy, but the clients still have the final say.   

Contact: MDRTeditorial@teamlewis.com