Sometimes clients overreact to financial news, so use these tips to curtail their excitement.

  1. Reiterate comfort levels

    Reacting to every market hiccup is just as unnecessary as tinkering with thermostats.

“If a portfolio is designed, balanced and managed properly, and the investment policy relates to the client’s objectives, then doing nothing is probably your best course of action,” says Nicolas Grady, advisor with Assante Capital Management.

To show clients their investments will work within long-term market cycles, he regularly rebalances to keep risk levels consistent.

  • Focus on System 2

    To calm jittery clients, Chet Brothers of Brothers & Company Financial looks to economist Daniel Kahneman, who classifies human thinking into System 1 (fast, intuitive and emotional) and System 2 (slower, deliberate and logical).

    When clients are in System 1 mode (worried about the current market), he helps them switch to System 2. Doing that requires reviewing their time horizons and the fundamentals of their portfolios.

    “I try to get them back to being rational,” says Brothers. “What happened during the few hours of trading today is meaningless. When people get that, they think slowly again, and feel good when they leave. But I know we’ll have to repeat this lesson.”

    Enlarge

    System 1 in action

  • Don’t panic, either

    Clients can make requests that jeopardize their long-term strategies. Be careful about acquiescing. It’s easy to say, “Why don’t we buy some GICs to smooth the anxiety you have about equities.” If advisors do that, notes Grady, “We’re no better than clients who get caught up in current market conditions.”

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