Responding to Volatility: Communicating with Investors During a Market Dislocation

Financial markets have seen a significant increase in volatility this past summer. Global markets were convulsed first by developments in Greece, and then, more dramatically, by the sell-off in Chinese equities. In just a few months we seemingly went from relative market quiet to a level of wealth destruction not seen since the 2008 financial crisis.

How should market professionals, whether they are Portfolio Managers or Financial Advisors, deal with client concerns during disruptive periods like this? There is only one sensible communication strategy: proactiveness. Clients want to hear from the stewards of their assets more, and not less, during volatile times. Communication via email is important, but reaching for the phone and actually calling people is usually the best course of action. Younger market participants may be shocked by this, but an actual voice call is the best way not only to show investors that their concerns are your concerns, but to also gather intelligence on what clients are thinking and feeling. Text and email clearly have their uses, but the dynamic back and forth of a conversation is what can really assuage the concerns of a client over the dramatic moves we have seen in the last few weeks.

But beyond the above, we should bear in mind that a proactive communications strategy during bad market times is just good client service. Asset gathering is an expensive, arduous process. Investors have multiple options in a crowded market. Portfolio Managers and Advisors would be wise to work hard at retaining their existing client base by being available and communicative. Far too many market professionals, however, get squeamish when faced with the task of having to report bad news. The tendency for many is to send out an email, and then do one's best to avoid client calls and communications.

And for any investor reading this post, now is a good time to ask yourself: have you heard from your asset managers or advisors in the past few weeks? Many hedge funds and traditional managers have by now reported their August numbers. Some numbers have been constructive, but many funds were negatively impacted by market turbulence. How many of them have reached out to you beyond an email?

While going into stealth mode during market turbulence may save some short-term stress for market professionals, the long-term impact will be a loss of credibility with clients, and ultimately a loss of assets as well. When markets are buoyant, as they have been for the last few years, everyone is happy. It’s when we see the type of action we have seen in the past few months that market professionals earn their credibility. Investors remember who was there to provide insight and support during turbulent times. They also remember those who were not.