Why advisor's job is to keep clients invested

Bad news sells and investor fear is real but advisor explains why sticking to portfolio strategy is paramount

Why advisor's job is to keep clients invested

Bad news sells and taps into the human psyche in the same way a market downturn prompts investors to hit the “sell” button. More often than not, these two behavioural ticks are not mutually exclusive.

The constant analysis of late-cycle dangers, warnings of recession and volatility, and interest rate uncertainty has so far belied decent economic numbers in North America.

Rob McClelland, co-branch owner, senior financial planning advisor, Assante Capital Management, said there is no doubt that people are on edge after a poor 2018 for the markets. But all these clouds of doubt, for him, simply reinforce the importance of keeping clients invested and trusting your strategic process.

He doesn’t think a recession is imminent but conceded that he can’t be sure a major event will trigger a major downturn. The point, he said, is that there are always clouds on the horizon and there is always media willing to boost its profile by highlighting this.

While entertaining, these should not significantly disturb an advisor from his or her philosophy and investors should also consider that the economy is a very different-looking beast to what it was in previous financial eras.

He told WP that, from the media's point of view, there “always has to be a bogeyman”.

“Big picture, the economy is doing reasonably well and unemployment is very good. We've got a very different economy to what we had 20 years ago; there are a lot of people working from home, small businesses, people doing all kinds of things on the internet selling you name it, and all kinds of services that didn't exist before.

“And people are working. All you need to do is look at the roads, the amount of trucks … there is stuff going on. Yet, in the press, you get this sense of doom and gloom that there’s a recession coming.

“There will be a slowdown at some point. Do I see it in the next three to six months? I don't but who knows? Some major event could trigger it but I don't think the trade war, as entertaining as it is, is the thing that’s going to do that.

“There’s always going to be something that’s going to scare you. At the end of the day, if you’re a financial advisor and you're looking after a group of clients, your job is to keep them invested and not worry about all the clouds.”

McClelland and his team have over the years tracked their money flow and know that after a negative year, clients succumb to their instinct not to put money in. These periods also fail to bring in new clients, while the inflows and outflows in mutual funds, he added, show the same thing – that investors are poor at timing the market, stop putting money in and often move assets to fixed investments.

So what should an advisor do when bad news triggers those behavioural senses of investor fear?

He said: “There are two schools of thought – strategic and tactical. You get some people that think they're strategic, but they play around the edges. I am more strategic. We have an asset mix that we stick with, we rebalance that and sell from an area that's done well over a period to an area that hasn't.

“People always struggle with that concept until I ask them: when's the best time to buy, and they go ‘when things are low’; and when's the best time to sell and they go, ‘when things are high’.

"Then they sort of get it. To tell them we're going to put more money into international markets and take it out of the US markets is a scary concept for them. But we're very strategic and always have been.”