As anyone will tell you, when the market is crashing is not the time to sell. Certainly, a good advisor will look to cut losses, or take what profit remains, in some areas, but the best way to react is generally to hold. Is this a week- or month-long correction? A full, 1929-style depression? You don’t know, and nor do we. We’d all feel pretty silly if we panicked, sold everything and then found that the market had corrected three weeks hence.
Financial products, though, are complex, and so are people. This means that when, as in 2008, the world seemed to be going to hell in a mortgage-backed handcart, it was hardly a surprise that non-financially minded clients could panic.
A colleague told me of the case of an elderly lady, who was using the money that her late husband had left her to pay for the school fees of her many grandchildren.
As the market went through one of its many plunges, she called in a state of alarm. She had recently learnt to use the internet, and was a devotee of the Daily Mail website, which had published their usual worst-possible-case scenario story. Were her investments really going to dwindle and disappear?
Luckily, my colleague was at the end of the phone – out of hours – to field her panicked questions. When it came to her account, he stuck to the facts and figures: yes, she had lost quite a bit of value, and the account that was worth that much last month was now worth about 12% less. He also stuck rigorously to the truth. No, he didn’t know when the falling market would slow, and no, he couldn’t guarantee that it would all come out in the wash.
When the questions came to an end, though, he was able to start doing what he was qualified to do: advise. No, we shouldn’t sell it all; and yes, he was sure that she was exposed to the right stocks to make the most of any rise. He could also use his experience with the markets to offer some optimism by pointing out that they had been through even worse in this year alone, and that he would guess that the market could start to rally in the next week or so.
He could also quell her fears that she wouldn’t be able to afford the next round of school fees by promising to drawdown some of her positions to release the requisite cash when the markets opened.
It’s useful to recall this story in the second month of 2016, when markets are off to a terrible start. The annual Edelman Trust Barometer study repeatedly points to the need for clients to be able to rely on the absolute truth of what their advisors tell them. These findings are backed by other, similar polls, like those carried out by TIAA-CREF and our own Monetary Authority of Singapore.
What does this mean in practise, though? Nailing down what is meant by the words ‘trust’ and ‘reliability’ in wealth management comes down to being available, even in off-hours, and giving honest explanations.
Paul Seligman, Meyado Private Wealth Management, Singapore
It's a volatile start to the year