Lean Into Tough Client Conversations When Market's Down: Frontier Asset Management CEO

Investors get nervous in down markets and often create a destructive internal dialogue, so it’s important for financial advisors to offer support and long-term perspective, according to Robert Miller, Frontier Asset Management CEO.

“The more communicating an advisor can do to those clients, to reassure them that, yes, we’ve been there before, it’s bad now but this isn’t out of historical norms. If you look back at history, there are many time periods like this, that they’re always seen as opportunities after the fact,” he said.

Frontier, which employs 50 people and serves financial advisors and their clients, had $6.8 billion in assets under advisement as of March 31.

ThinkAdvisor recently interviewed Miller, who was speaking from his home base in Sheridan, Wyoming. Here are the highlights of our conversation:

THINKADVISOR: Do you see a recession and/or market crash ahead?

ROBERT MILLER: We may already be in a recession, but with such low unemployment numbers, it is hard to believe. Inflation is still a significant threat, and the economy’s reaction to continued Fed rate hikes will determine whether we see a recession. 

It is hard to say what the downside return of the U.S. markets can be from here. The expectation is around continued volatility both up and down. The stock market’s usually a leading indicator; many times, before the National Bureau of Economic Research declares the recession, the stock market has already turned around.

The market is still priced high historically, but a good active manager may be able to find pockets of value in this type of market.

How can advisors help clients with expectations, and with the urge to check their 401(k) and other balances?

With expectations, it’s setting that ahead of time. When the market was returning 10%, 15% a year, making sure your clients know those aren’t realistic expectations going forward. 

If equity returns have a single-digit real return over time, that means we have to have a pullback in the market at some point. And we know that when they’re down, they will come up to get us to those returns that we’ve seen over long periods of time.

The urge to look at your investment account weekly, monthly, even quarterly, hopefully not daily or hourly, technology keeps helping us to really see this stuff all the time. The hard part with that is that’s not the actual value of your portfolio. Your value is at the point where you go to sell it.

If you’re not going to use that information constructively, if that’s only going to cause heartburn or sleepless nights, don’t look at it. Look at it on more of a kind of review basis with your advisor in terms of where you’re going.

What are the best ways for advisors to help clients handle a down market?

The first thing that I like to stress is empathy. When you’ve already experienced large drawdowns, advisors need to approach clients with the idea that this could be their life savings.

Really look at the idea that we’re investing for the long term. If we can get the downside risk right, if we can look to time horizons that are longer, most advisors come up with some kind of goal. Really be focused on that goal. You know there’ll be ups and downs as we go through the markets. 

The biggest impact an advisor can have is to keep their clients on target for their goals and not let the client get off course and impair their investment portfolios by going to cash or pulling things out of the market or making rash decisions without fully thinking through where they’re ultimately trying to go with the investment.

What should advisors be discussing and doing with clients?

Risk is defined in different ways that can confuse clients. A lot of times we talk in these statistical terms that clients don’t understand. Clients can understand what it means to lose 10%. So moving the conversation to what makes sense for the client but then actually being able to manage around that.

Look at the correlations of different markets, not just diversifying by throwing more stuff into a portfolio, but putting it into a portfolio by design to help get to the right risk levels. And when we do see volatility in the market, have those real conversations with clients to make sure they’re at the right risk level.