Thriving in a Post-COVID world
“A year ago, the World suddenly stopped as we were hit by a global pandemic of epic proportion. Investors worried about their health and whether they would have enough money to weather the storm. They worried about their loved ones, jobs, and businesses.”
There were a few historical comparisons; the Spanish Flu (1918-1920), Asian Flu (1957-1958), AIDS (1981-present), Swine Flu (2009-2010), and Ebola (2014-2016). We also struggled to understand the global impact and how it would change our lives. We wanted answers! How can we slow the spread of the virus? How long would it last? When can we expect vaccines?
Beyond the health issues, investors were seeking guidance about the markets and their portfolios. Wealth advisors needed to pivot quickly from dealing with a robust economy, to an economy intentionally put to sleep to save lives; and they had to deal with unprecedented market volatility, and uncertainty about when the markets would stabilize. The precipitous declines in February and March were very troubling for investors, and no doubt many considered heading for the exits to avoid further losses. Investors heard daily death tolls, saw ravaging images, and saw their wealth plummet.
During the early days of the pandemic, we experienced 8 of the 10 largest point losses of the Dow Jones Industrial Average (DJIA); which was quickly followed by 8 of 10 the largest point gains as the markets were flooded with fiscal and monetary stimulus. Note, only 2 of the 10 largest percentage losses occurred in 2020. Because the markets were at all-time highs, the point losses and gains exaggerate the overall the percentage moves from lower levels. By comparison, the largest percentage loss occurred on Black Monday, October 19, 1987, where the down fell a then record 508 points (-22.61%).
Dow Jones Industrial Average: Largest Losses of All-Time
After the unprecedented drop in February and March, the markets began to focus on the economy which was helped by fiscal and monetary stimulus, and industries that benefitted from the “Stay-at-home” economy. The markets recovered all of their losses and reached new highs at the end of 2020. The markets are a future indicator, anticipating economic growth, corporate earnings, and shifting consumer needs and behaviors.
Lessons Learned
We learned a lot about the resiliency of investors in 2020. While some investors panicked during the downturn, the vast majority of investors stayed-the-course and reaped the benefits of staying invested throughout this period. Many wealth advisors had prepared their clients for the inevitable and were able to keep their client’s focused on the long-term goals and objectives. They had honed their behavioral coaching skills during previous corrections and had prepared their clients for the normal boom and bust cycles. (Read my behavioral coach blog.)
During periods of extreme volatility, I am often reminded of a discussion with a well-known business reporter after the 2000 Tech Bubble burst; when I asked him if his network helped or hurt investors with their coverage of the market volatility. After a long pause, he responded in a matter-of -fact fashion, that his network was in the “entertainment business”. Of course, most investors perceive the news (business & political) as gospel, when in fact the sensational stories drive ratings. The networks and social media want people to tune in and listen, and they understand the need for information is elevated during a crisis.
Wealth advisors know the value of focusing on each client’s long-term goals and objectives. They understand the importance of keeping client’s focus on their personal circumstances and avoiding the noise that serve to distract and scare them. Successful advisors serve as both wealth advisors and behavioral coaches, recognizing the temptation of investors to allow their emotions to overrule rational thinking. The following are a few of the lessons learned over the last year.
Expect the unexpected – there are always unforeseen events that shock the markets. Advisors should prepare clients for future volatility in advance of shocks and help them through the tumult. Talk to investors about the history of financial markets and the value of staying-the-course.
Communication is key Revisit risk appetite– during periods of uncertainty, err on the side of over communicating to clients, as uncertainty can lead to irrational behaviors. Advisors should focus on the quality of communication and should communicate with a purpose. Volatility may provide an opportunity to deepen client relationships by moving beyond the portfolio.
Revisit risk appetite - clients often feel very differently about risk during rising and falling markets. Advisors should revisit each client’s risk profile during periods of elevated volatility.
Review goals and objectives – client goals often change over time. Advisors should use market volatility as an opportunity to review each client’s goals and objectives.
Become a behavioral coach – the value of an advisor is not outperforming the market, but rather helping clients achieve their goals and objectives in good times and bad. The advisor’s ability to keep clients focused on their goals during market volatility is of critical importance during market shocks.
Are you prepared for the next crisis?
The world was caught off guard with the global pandemic, initially leading to extreme market volatility, and then resuming its march to record heights. Many wealth advisors saw their practices thrive because their clients needed their counseling and coaching. Clients were reminded of the value of sound advice, delivered through humans, to help navigate through challenging periods.
None of us know what the next event will be – but I feel confident that there will be another event that shocks the markets. We need to ask ourselves the following questions:
Was your practice prepared for the pandemic?
Was your practice set-up to communicate remotely with clients?
What can you do to better prepare for the next crisis?
Do you have the right team and resources to weather the next storm?
Have you prepared your clients for the inevitable?
What do you need to do to prepare them appropriately?
How can your practice thrive during the next crisis?
To learn more, please join me for my next Exceptional Advisor Webinar, “Engaging Clients in the ‘New Normal’: The Future of Advice in a Post-Pandemic World”, featuring April Rudin, Founder & CEO of the Rudin Group.
Register here.