13 Ways FA Can Approach Clients During Drawdowns

January 10th Twitter Spaces Review

Onramp Academy

JANUARY 10TH, 2022

Summary

As you can tell from the chart below, both BTC and ETH have experienced more than 10% drawdowns since the beginning of the year. Unlike traditional assets, crypto trades around the clock, 24 hours a day, every day of the week. Therefore, when people or institutions want to trade, they can. In turn, clients of financial advisors may focus their attention toward's cryptoassets during times of downward volatility.

 

Here are 13 ideas for Financial Advisors to use when approaching client conversations during drawdowns:

  1. Be a servant first. Answer the questions your clients don’t know to ask.
  2. Revisit The Core 4: Risk tolerance, Investment Policy Statement, Estate plan, and overall Financial Plan
  3. Be proactive with your communication. Don’t wait for your clients to reach out to you. Handle downside volatility in the crypto markets just as you would with traditional markets.
  4. Introduce the crypto conversation. If you’ve been looking to start the conversation with your clients about cryptoassets, use the downside volatility and the planning opportunities that come with it to get clients sharing what they own with you.
  5. Take notes. Make notes in your CRM of client behavior and conversations to revisit how they felt during a decline. Use this to adjust allocations and planning, if necessary when markets recover.
  6. Take action. Volatility to the downside gives advisors the opportunity to rebalance, harvest losses, and put cash to work. Don’t let the opportunity to make lemonade pass when the lemons are presented. 
  7. Reaffirm and provide confidence. Reassure your clients why and where crypto fits in their plan, how the volatility has been modeled into their financial plan, and any other data and visuals you have to help tell the story of crypto in their financial plan.
  8. Active or passive management. If clients are managing their crypto on their own, discuss with them their strategy. Are they actively or passively investing and should they be taking action based on their strategy?
  9. Liquidity. Understand the liquidity in your clients’ cryptoassets. Staking and illiquid NFTs are just a couple of examples of assets clients may hold and not understand their illiquidity.
  10. Translating the noise. Be a resource for your clients to make sense of the headlines, doom & gloom, and other noise they will hear, read, and see.
  11. Set expectations. Before downside volatility happens, talk to clients in advance reminding them of the historical swings we’ve seen in the cryptoasset markets.
  12. Understand leverage in your client’s portfolio. Your clients may have leverage in their portfolio and be unaware through yield farming, lending, options, etc
  13. Educate Yourself. Understanding the cryptoassets space will provide the confidence you need to be the voice of reason for your clients.

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