1. Identify the underlying concerns driving investment needs.
Emotions can cause an investor to act against their best interests and underlying concerns, forgetting what truly matters most to them. According to a recent study¹, investors are more than twice as likely to prefer having predictable protection over potential gains.
When markets are soaring, you may need to educate and remind these clients that the reason they are not achieving S&P 500 returns is because their primary goal of their investment strategy is to protect.
For example, Beacon Capital Management’s Vantage portfolios provide a mechanical stop-loss protection measure to pull back from equities in times of extreme market volatility. In mid-December 2018, we had rotated out of equities and protected clients from the additional losses seen by December 24. By going into fixed income, we avoided the decline and missed the rapid rebound in early 2019. However, our goal is not to time the market and hit home runs, but rather to remove catastrophic losses. By doing so, our short-term gains don’t have to be as big to deliver consistent long-term results.
2. (Re)evaluate your clients’ equity exposure.
Each sleeve in your client’s assets should be positioned for a particular purpose, and these needs can evolve over time. It is important to maintain open communication to understand those needs to maintain alignment in their investments.
For example, if a portion of the assets will be used to fund retirement income, consistency and defensive strategy will likely be the priority. There may also be room to include a smaller “opportunity bucket” within their plan to pursue chances for higher gains if chasing performance continues to be a desire or focus.
3. Rather than defend – describe.
Regularly revisit the rationale for having a defensive strategy within a client’s investment lineup. Being proactive now beats being reactive when they are looking at their quarterly statements or discussing returns with their friends on a golf course.
Frankly, defensive strategies like Beacon’s have lagged over the last 1, 3, 5 and 10-year periods. Formerly top-performing strategies have dropped in ranking as the 2008-2009 period has rolled off, so these measures no longer factor in bear market performance. This is a critical and often overlooked consideration that needs to be pointed out to most clients!
And while no one can control the stock market, we can control client satisfaction. Investment performance ranks well below your reputation, relationships, service and advice as the reason for client satisfaction¹:
Need a defensive strategy?
Contact your Beacon wholesaler to learn more about our investment philosophy today!
¹ Sources: Phoenix Marketing International, Cerulli Associates