How Can Advisors Support Clients During Market Volatility?

No advisor wants market volatility, but every advisor knows it’s inevitable. Because of this, it’s paramount for advisors to be prepared to help their clients successfully navigate challenging market environments when they arise.

Still, there’s no “one correct way” to guide clients. So how is an advisor to develop a well-rounded approach? While experience may be an invaluable—yet limited— teacher, advisors can supplement their own knowledge by tapping into the wisdom of the crowd.

In our recent study, we investigated how top advisors handled market volatility with their clients and uncovered important insights and effective practices. These findings come from a group of advisors around the world with representation across age, career tenure, industry channel, and fee structure.

We—researchers at Morningstar Behavioral Insights Group— discovered that behavioral coaching may not only help advisors address the issues clients want to talk about but also help them adopt the mindset they need to succeed during market volatility. When advisors reflect on their own experiences and the experiences of other advisors, it can be easier to create a comprehensive strategy and deliver value to their clients.

To read the full research report, download a copy.

During market volatility, the top issue clients brought up to their advisor was market dynamics. Namely, clients were curious about the causes of market fluctuations and how volatility works. By having educational resources at the ready, advisors can guide conversations and aid clients’ comprehension.

The second most common topic clients wanted to discuss was how volatility would impact them. Naturally, clients wished to understand what upheaval in the markets would mean for their investments and whether it would affect their lifestyle. To handle this discussion, advisors should build a toolkit to help provide their clients perspective and lead them to make better decisions. For example, advisors may use visuals that demonstrate how their investments have rebounded in the past to show clients what long-lasting effects may actually look like for them.

Another way to sate clients’ desire to understand what market volatility means for them is to reconnect them with risk profiling and risk scoring tools. Clients’ risk perception (that is, their judgement on investment risk) can be swayed by the latest news headlines and make clients feel like their portfolio is riskier than their actual risk tolerance dictates. Our risk tolerance questionnaire allows clients to understand their comfort with investment risk and opt for more informed trade-offs. Advisors can help their clients realign with their risk tolerance by talking about how their risk tolerance is accounted for in their financial plan— and what that means during rocky markets.

Few advisors reported that clients wanted to talk about their long-term goals, which means advisors should help their clients regain perspective beyond the noise of market volatility. Advisors need to be ready to slow their clients down and give them a chance to revisit their goals, reminding them of what is at stake when they talk about reacting. Shifting clients’ attention back to these goals can help them find their footing amid uncertainty, as it refocuses them on the future they are working toward.

Advisors also seldom reported that their clients wanted to discuss the opportunity available to them during market volatility. Often, market downturns can provide good opportunities for clients with a contrarian mindset—those who see it as a time to invest when things are at a “discount.” This not only allows investors to take advantage of a down market but can also let them adopt a more resilient attitude. Plus, Morningstar’s report on turning volatility into positivity shows how understanding psychological drivers—like recency bias and herding behavior—can help advisors reframe client discussions and strengthen trust.

Technology like Direct Advisory Suite is designed for advisors to streamline their workflows and stay on track with investor goals. Combine client profiling tools with our data and research to deliver investment plans that align to client profiles, values, and risk tolerance.

Our data suggests that using behavioral coaching may ease investors’ panic of market uncertainty and further help them adopt a more opportunistic mindset.

In other words, advisors can incorporate a variety of behavioral coaching tactics to respond to their clients during market volatility—supporting them to shift their mindset to be less likely to make costly errors and more likely to stay committed to their goals and find investing opportunities.

Top strategies for advisors include:

1. Act as a financial educator.
   Clients want to understand what's going on. Advisors should have materials ready to facilitate conversation and comprehension. This may include having visuals to show in conversation, preparing newsletters that help them make sense of the market, or providing articles that explain the mechanics behind volatility and recovery.
2. Encourage long-term investing.
   Clients often lose sight of their long-term goals during market volatility, which can lead to them getting off track. Consider having a financial planning exercise prepared to support clients in slowing down, recommitting to their goals, and adopting a long-term investing focus.
3. Provide decision-making support.
   Clients want to understand what market volatility means for their portfolios and lifestyle. Advisors can support clients by reviewing their plan with them and helping them identify whether any strategic changes are warranted. One way to do this is to conduct a few retirement projection scenarios to show clients how their portfolio is robust to the ups and downs of the market.

Advisors may not know when the next bout of volatility will strike, but they can prepare to effectively help their clients by learning both from their experiences and from other advisors.

Ensure you have a plan in place that adopts behavioral coaching principles like financial education, a long-term mindset, and decision-making support. Doing so not only will allow you to help address clients’ concerns but also help them shift to a calmer, more productive mindset.

Meet the needs of investors with Morningstar Direct Advisory Suite. The connected suite of tools lets you build investment plans, manage portfolios, improve client trust, and more.