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Financial Advice

Russia Invades Ukraine: What Do Advisors Say to Clients?

They appreciate hearing from you in times like these.

Editor’s note: Read the latest on how Russia’s invasion of Ukraine is affecting the global economy and what it means for investors.

In response to Russia’s invasion of Ukraine, the markets responded with extreme volatility on Thursday. The Nasdaq was down as much as 3.4% before ending the day with a 3.3% increase; other major indexes finished the day higher, with the Morningstar US Market Index up 1.75%, the S&P 500 up 1.5%, the Dow up 0.3%, and the Russell 2000 up 2.6% (recovering from a loss of 2.6%). Maybe we expected to see markets fall after war began, but was the immediate recovery and turnaround a surprise? What will happen tomorrow, next week, next month?

Clients might feel OK today, having seen an immediate recovery, but tomorrow (or next week or next month) could be different. And when the markets drop, clients tend to worry. As advisors, we've been through this drill before. You know that you can't predict the market--and Thursday was a perfect example. But what do you say to clients?

I think what you say is less important than the fact that you reach out. Most clients don't understand the markets; they tend to react emotionally. Your job is to reassure them that you are paying attention. Clearly, sending an email that says, "Don't worry. We're paying attention" will not cut it. Just the act of sending an email says that. Now is the time to reinforce clients' trust in your knowledge and their investment strategy.

Whether through an email or a phone call, points to note to clients include:

  • We are contacting you to let you know we are monitoring the situation closely.
  • Nobody can predict the market. Look at what happened on Thursday!
  • There will likely be continued volatility due to concerns over inflation, supply-chain issues, and general uncertainty. (You might want to cite some current relevant information, such as the following quote from David Sekera, Morningstar's chief U.S. market strategist: "The next step for the markets will be to evaluate the potential impact of the sanctions that the U.S. and its allies will impose against Russia and gauge for any signs of further escalation or de-escalation. … We do not expect much of a direct impact on U.S. stocks from the sanctions. … [However,] depending on the additional sanctions that are likely to be implemented, the risk to U.S. stocks would be for heightened inflationary costs."
  • The markets are resilient in the long run, and that's why we adhere to our long-term strategy.
  • When there is a market drop, we take advantage of two major opportunities: rebalancing (selling "up" positions to buy bargains) and tax-loss harvesting (claiming tax benefits from temporary losses).
  • We know that sticking to the plan is the best approach.
  • We're here to talk or meet with any clients who have further concerns.

This type of reassurance might seem superfluous to many advisors, but I assure you it is not to clients. In fact, I've gotten new clients in the past just because their previous advisors never contacted them during scary times.

Your two biggest jobs as an advisor are to take away the worry and prevent clients from taking actions that will hurt them in the long run (like selling when the market drops). Sending a simple email or making a call at a time like this can go a long way.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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