The Upside of Down Markets
Five steps to help you win with clients when the markets are losing
For Financial Advisors, RIAs, Analysts, Institutional Clients and Consultants only
Please make the necessary corrections below:
For Shareholders Only
Access your MFS mutual fund, IRA, 529 savings plan accounts, quarterly statements, and sign up for eDelivery.
LoginIf you check this box, anyone using the computer you are working from now will be able to enter your mfs.com homepage without having to know or enter your user name and password.
If you are working in a public space, such as a library, you would not want to select this option. You also might decide against this option if you visit the MFS site from work and others have access to your computer.
If you do NOT click this box, you will have to enter your user name and password each time you wish to view your mfs.com homepage. Regardless of what computer you are using, NOT clicking the box is the more secure choice for you to make.
The Upside of Down Markets
Five steps to help you win with clients when the markets are losing
We all know that being proactive and having a plan makes most things run smoothly. A good plan touches on your goals, the steps to achieve them, the tools you'll need and how to overcome obstacles. Usually the best time to make a plan is before you need it. After all, you want to know where the exits are when you smell smoke. Volatile markets, like fires, can cause anxiety and lead to poor decisions, so now may be the time to develop an action plan.
Determine the Goals of Your Plan
Having a proactive plan is one way for skilled advisors to prove themselves and build lasting relationships.
The first step in developing a plan is to think about your goals, which could include the following:
Implement Your Plan
Once you have determined your goals, take the steps below to implement your plan. To help you, we've put together lists of suggested actions, tools and resources you can make use of for each step.
Prepare Client Communications
Build Your Audience List
Provide Educational Materials
Assess Clients' Portfolios
Analyze Your Investment Managers
Prepare Client Communications
Step 1
Discussing how to respond to a market slowdown is a conversation that can be tough to have. Even the mention of a downturn can be scary. While many clients realize that the market can't go up forever, the reality of a bear market can push clients into making poor decisions. Preparing your clients for volatility now may help reduce anxiety when the market drops. Knowing what to expect can instill confidence. Talking to your clients about volatility can be easy. You can use our "Buy Low, Sell Why?" flyer, which explains why staying invested and sticking with their plan can help them pursue their goals. It's easy to show clients that despite bear markets (represented by the red parts of the line in the illustration below), the market moves higher over time and that selling out of the market can be detrimental.
You can refer to the chart below as you kick off the conversation by asking your clients the listed questions.
Investing for the long term and having a disciplined plan can help you work toward reaching your goals.
Source: SPAR, FactSet Research Systems Inc.
Past performance is no guarantee of future results.
*Dow Jones Industrial Average, 4/28/42–12/31/23.
Returns are shown based on price only. It is not possible to invest in an index.
The Dow Jones Industrial Average (DJIA) measures the US stock market.
Reaching out to clients can show them that you're prepared and thinking of their needs.
Conversation Starters
Question "Looking at the bear that started in ____, with the benefit of hindsight, what could you have done?”
Insight Emphasize that either of the typical answers, buy more or wait it out, are good.
Question "Is the line in the chart generally going up or down? Does the market spend more time in bear markets (red parts of line) or bull markets (blue parts of line)? Can you see how the market was able to rebound after declines? Given this historical perspective, what should an investor do when markets decline?"
Insight Point out two recent bear markets that most clients remember — the dot-com bubble and the financial crisis. Underscore that making emotionally driven decisions during bear markets can be counterproductive.
Question “When the next bear market occurs, we won't have the benefit of hindsight, but what do you think you should do when the market declines?
Insight Drive home your point with this question and write down what they say. When the market drops, call your clients to answer any questions and give your perspective. Then ask, “When we talked about bear markets a few weeks (or months) ago, you said your plan was to wait it out (or buy more or move some assets to stocks). Do you still think that’s the right plan?
Start planning today to turn adversity into opportunity.
Given today's uncertainty, now may be the time to prepare for market volatility. Our volatility resources web page has educational material, practice management tips and investment insights to help you navigate changing markets.
By setting realistic expectations of what can happen, your clients can potentially be better prepared. Take the time to reflect with them on decisions made in the past that didn't pan out and discuss what they can do differently this time.
Build Your Audience List
Step 2
Your outreach to clients and prospects should be based on their concerns or interests. Prepare six groups of clients or prospects based on the list below. Gather their contact information so you can reach out quickly. If you are a skilled advisor, volatility can be an opportunity to prove yourself. Below are some client outreach ideas to get you started.
Group Criteria
Clients who are waiting for a market decline of 10% before investing
Action
Call them when the market declines 10% or more.
Conversation Starter
"You wanted to invest after the market pulled back 10%. We crossed that threshold yesterday."
Group criteria
Clients that require a lot of attention or have high expectations
Action
Call or email them now, before volatility increases or the market corrects.
Conversation Starter
"I think we're in the late cycle of the bull market. I'd like to talk about what could happen given the recent volatility. Let's see how you're feeling and review our plan."
Group criteria
Clients who didn't react well during the last downturn or who seemed nervous when you launched your playbook
Action
Call them the week before the first bad statement is due.
Conversation Starter
"I'm following up on our conversation last month about volatility and market declines. The market has been rocky lately. I want to talk to you about what to expect when you get your next statement and whether we should consider modifying our plan."
Group criteria
Prospects who already have an advisor
Action
Call them after the market declines, maybe a week after quarterly statements arrive.
Conversation Starter
"I know you have an advisor, and I'm sure they've already called you to discuss what's been happening in the market. I thought you might appreciate another viewpoint.
Group criteria
Clients that have joined your practice and haven't been through a bear market
Action
Call them now before the market corrects or enters bear territory.
Conversation Starter
"I think we're in the late cycle of the bull market. Let's talk about what to expect and review your plan."
Group criteria
Clients that have retired in the past few years
Action
Call or email before the market corrects or enters a bear market.
Conversation Starter
"The market has been volatile recently. I'd like to review your portfolio and your plan given recent market activity."
Group criteria
Clients that want to buy when the market declines
Action
Call them when the market declines 20% or more.
Conversation Starter
"I know you wanted to buy when the market declined and valuations were cheaper. The market's now down about 20%. Some of the areas you were interested in look attractive."
Now more than ever, clients need good advice. Rather than waiting for a market event, think about being proactive now. Explore eight tips to keep you relevant with clients.
Explore eight tips to help you build rapport with your clients, keep them on track and reinforce your value.
Provide Educational Materials
Step 3
Most clients have a hard time keeping calm and on track during market declines. So it's important to be proactive, to arm them with knowledge and to ease their anxiety. Educational resources can help keep your clients on track and focused on their investment goals. Here are some of the tools and resources that you can mail, email or present in person:
Principles of Investing with Resilience Client Seminar
This educational seminar can be used with clients and prospects alike. It addresses volatility head on and explains how to navigate volatile markets, as outlined below.
Principles of Investing with Resilience Playbook
For one-on-one meetings with your clients or prospects, this playbook-style presentation is a modified version of the client seminar, with easy to understand key points and actionable takeaways.
Client Resources
Demonstrates how market dynamics have changed substantially and that achieve the same returns as in the past, investors must take on significantly more risk
Shows an easy way to estimate how long it will take clients to double their money
Explains how investing today could give clients more opportunity to grow their investments over time
Helps clients maintain perspective during volatile markets by asking fundamental questions.
Teaches that historically market declines haven't lasted and stocks have generated positive returns over long periods of time
Markets can change on a dime. Educate clients now about the potential benefits of staying invested.
Show clients the benefits of keeping calm when volatility heats up with this easy-to-understand seminar that walks clients through the key points of long-term investing.
Assess Clients' Portfolios
Step 4
Your investment plan is another tool in your arsenal. A well-allocated portfolio may be a key part of minimizing the impact of a bear market, and knowing what you own is more important than ever. While you can't control the market, analyzing and reassessing your clients' portfolios is something you can manage.
Rerun your Matrix
It's been over 10 years since the financial crisis; as a result, 10-year numbers may provide less insight. However, IRIS, MFS' new analytical tool, can run 15-year data if they're available. We use IRIS to compare funds and create simple, easy-to-read reports that go beyond standard performance, providing real transparency. IRIS is an in-house analytical resource using third-party data and provides a high-level fund overview, including asset allocation, holdings and fund statistics; multiple views of performance and risk measures; and a comprehensive breakdown of funds. The result? Clients can be confident they know what they own.
Stress-test client accounts
There are a number of financial planning software packages available on the Internet for stress testing portfolios.
Review risk tolerances
While executing your silver linings action plan with clients, you can review your allocations to make sure they're still aligned with the clients' risk tolerances. This is especially important for retired clients, who are more affected by downturns because they rely more on their portfolios.
Conduct a liquidity review
Keeping a portion of client assets in liquid assets ensures they have access to funds if they need them. Conduct a liquidity review to see which assets could be sold without impacting clients' long-term financial goals.
The market and economic backdrop has changed substantially. Now may be a good time to understand how a new cycle could impact client portfolios.
A deep look into your portfolios can help you navigate markets. IRIS(SM) provides easy-to-use and customizable analytical tools.
Another strategy to help manage bear markets is to invest in actively managed funds. While index funds follow the market down, well-resourced active managers can potentially provide some downside risk management by pivoting out of overbought industries or even avoiding them from the start.
Analyze Your Investment Managers
Step 5
The financial crisis most likely formed a lasting impression in your clients' minds, perhaps placing a premium on downside risk management. As the bull market hangs on, it may be more important than ever to find managers such as MFS that have navigated effectively through full market cycles and have a risk-aware culture. To find out if your manager has these key capabilities, ask them the following:
Founded in 1924, MFS has actively managed assets through the Great Depression, wars, recessions and the global financial crisis. We manage the oldest mutual fund in the United States, and to this day no other mutual fund company has navigated more bear markets.
What sets MFS apart is our commitment to a single purpose: to create long-term value for clients by putting investors' money to work responsibly. We do this by taking a long-term view and striving to protect capital in difficult markets
Markets over the past several years have been eventful. Now may a good time to explore how your managers have navigated this volatile period.
When it comes to active management, it's important to recognize that not all active managers are created equal. See how to identify strong active management versus luck.
This material should be used as helpful hints only. Each person’s situation is different. You should consider your client’s financial needs, goals, and risk tolerance before making any investment recommendations.
Past performance is no guarantee of future results. Keep in mind that all investments carry a certain amount of risk, including loss of the principal amount invested. Asset allocation or diversification does not guarantee a profit or protect again a loss.