Friday’s surprise ‘Leave’ vote has made a historic mess of the markets. According to the Standard & Poor Dow Jones Indices, $2.08 trillion was wiped from global markets that day – the largest-ever daily loss.
There’s no doubt wealth advisors’ phones are ringing off the hook as panicked investors seek reassurances for their portfolios. It’s a fear response advisors are wise to proactively head off says Chris Dewdney, principal at Dewdney & Co.
“I think it’s standard consensus that people are fearful, they’re nervous, they’re extremely cautious, and at the end of the day, they’re looking for direction and guidance,” he says. “I would recommend all advisors, if they haven’t yet, reach out to their clients. We want to be proactive instead of reactive in these situations.”
Dewdney adds that the unpredictability posed by the Brexit is especially nerve wracking for investors as other potential game changers – such as the U.S. election, or a contagion of nations leaving the European Union – loom in the short term.
“There’s a lot of speculation about what happened in Britain, when the polls were showing the opposite,” he says. “It was out of left field for everyone, and I think that has enhanced the fear. For the general consumer or public, the smart people in the room got it wrong.”
He says that it’s important for advisors to keep worried clients focused on the fundamentals during times of market volatility. “The fundamentals of the original portfolio shouldn’t really be affected if the portfolio was structurally appropriate to begin with,” he says.
“You’re looking at diversification, you’re looking at the risk tolerance of the individual, and their horizon - and if that was all accounted for, you shouldn’t really see anything too traumatic in one particular area.”
He adds that for many investors the urge to take action can be overwhelming, as media reports and hearsay fuel fear of losses.
“Staying invested is also extremely important. You typically see a flight to fixed income during times of market instability. If your portfolio has suffered a downturn, by selling, you’ve only crystalized your loss,” he says.
“A lot of time people think that doing something is actually being effective for their portfolio… but just being reactionary for the sake of it isn’t necessarily the best strategy.”
However, while advisors should take efforts to stem emotional investing, Dewdney adds that it’s important to be empathetic and a source of support during times of market downturn.
“Part of our job isn’t just about the technical aspect of the portfolio, it’s the soft skill of a relationship,” he says. “The client is going through a difficult time, especially older clients that are going through retirement; the impact to them from a psychological standpoint – not even a monetary one – is immense.”
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