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Even the most rational clients are subject to emotions, especially during the current coronavirus outbreak, when the threat is both financial and physical.

Few anticipated the kind of fury in the market that we witnessed between March 9 and March 12 of 2020. When your client calls to discuss the market turmoil, what do you say? Advisors often resort to the long-term data, preaching the 30-year performance of the equity market. To clients, this standard response sounds out of touch, eroding trust and rapport.

Clients may feel scolded or shamed. “My advisor thinks I am being emotional again.”

Clients may feel that you are not on the same wavelength. “Always the same old response, no matter what is happening.”

What is the alternative?

Show that you understand.

The chart below illustrates the market dynamics by showing the movement of the efficient frontier. Each mini pie chart represents a classic model portfolio. For example, the right most model is 100% equity (70% SPY and 30% ACWX). The top line shows the classic efficient frontier based on 30-year averages, with this model having an average return of 10% and average volatility of 20. You can barely see the upward trend of the efficient frontier because of the scale.

The gray dotted line on the bottom shows the actual risk and return (annualized) of the efficient frontier for the one-month period ending March 12, 2020. For example, the 100% equity model had an annualized return of -333% (roughly equivalent to -28% for one month), and a volatility of 56.