All good things must come to an end and so it appears has this bull market. Our research has been signaling caution for more than a year and the trend has finally broken. As we enter 2016, equity markets across the globe are down ~12% and if history is any guide, we can expect the bear to fall 20-25% assuming no US recession or as much as 30-35% if global contagion leads the US into recession too. The good news is that bear markets create fantastic business opportunities for advisors and investment opportunities for clients.
Yes, bear markets create a lot of work for advisors: portfolios require attending and clients need their hands held. But advisors who protect client assets and do not avoid the difficult conversations will hold on to their clients through the downturn. And those with a differentiated story for prospective clients will grow their practices: they will collect clients dissatisfied with their current advisors either because performance was poor, or more likely, because their advisor did not return their calls; and they will collect the next cadre of “Do-It-Yourself” investors who realize they have neither the time nor the expertise to manage through a bear market.
And yes, clients will get uncomfortable with losses and the parade of pundits shouting to everyone that “the sky is falling”, but bear markets also create fantastic opportunities to purchase risk assets cheap. Leveraging those buying opportunities will enable clients to compound their investment assets more effectively towards their retirement goals. And happy clients make happy advisors.
So what are the keys to leveraging this business opportunity?
- Time. Advisors will need time to attend to portfolios. They will need time to hand-hold clients. And then they will need time to share their story with prospective clients. Unfortunately this is a commodity that is in short supply for most solo practitioners and small ensembles. Fortunately, time can be achieved via a wide array of outsourcing partnerships, like Pinnacle Advisor Solutions, now available to independent advisors.
- Investment Program. It goes without saying, an advisor must produce investment results at least comparable to his/her peers. Clients have demonstrated a willingness to lose money so long as everyone else lost about the same amount of money and so long as clients continue to feel good about their relationship with the advisor. That said, we all know that fewer losses and better than benchmark risk/return is not only good for client outcomes but it also makes some of those difficult conversations considerably less difficult. Here again, there very competent third party managers like Pinnacle Advisor Solutions that offer multiple investment choices with better than benchmark risk/return outcomes that will do well by your clients and remove the bulls-eye from your back.
- Story. If you have managed through #1 and #2 above, there is a fantastic opportunity to capture new business. Prospective clients leaving another advisor want to know why they should trust that you will be any different than their last advisor and DIY investors will want to know what ensures you will do a better job than they did. In many cases, offering another passive strategic asset allocation program will be insufficient, especially with all the new low cost robo-advisors on the scene. In this case, you are the key differentiating factor. You will need to highlight (a) financial planning, (b) personal and customized service and (c) an investment solution that provides both choice and an opportunity to reduce some of the risk they just experienced in the bear market. Is there help available? You cannot buy a differentiated story off the shelf from TAMPs providing the same cookie cutter solution to thousands of other advisors. But you may be able to find a partner like Pinnacle Advisor Solutions who works with a small number of qualified independent advisors to provide them the support they need in financial planning a la Michael Kitces, investment management with multiple strategies to suit the client and each with better than benchmark risk/return, new business development, business consulting and succession.
Bull markets make for appreciating assets and generally satisfied clients. Only bear markets produce a large number of unhappy clients looking for a better solution. Don’t let this business opportunity go to waste. Explore all your options. Find a partner. And grow your business! We are here to help – schedule a call today.