Financial advisory clients are bound to experience stressful conditions that can impact their finances at some point during their relationship with their advisor. From market downturns to geopolitical shocks, there are many potential external factors that might make a client nervous about their financial situation. What’s more, the stories individuals tell themselves can lead to decisions that negatively compound the initial impact of the event. For example, a market correction can create fear for investors (particularly those nearing – or even in – retirement), and when they create certain narratives (e.g., “I need to sell all of my stocks now before the market drops further”) they can find themselves in an even worse situation. For worried clients, advisors often serve as a sounding board for many of their stories, putting the advisor in a unique situation to help clients weather their emotional challenges and stay on course with their financial plans.

Advisors naturally strive to offer expert guidance to their clients, but sometimes addressing only the technical intricacies of a client’s plan is not always the most helpful response. For example, reminding a panicking client during a market downturn that they have a diversified portfolio or that corrections are a regular part of market cycles might not resonate with them to truly alleviate their anxiety.

Instead, addressing a client’s upsetting stressors by encouraging them to form new personal narratives can help them understand and implement new perspectives that make it easier for them to address challenging situations in different (and often more successful) ways. In this way, the client can become their own ‘expert’ through facilitation from their advisor. One way for advisors to start this conversation is by asking the client the question, “What would you tell your best friend if they asked you this question?”

This strategy can lead the client to expand their narrative (by serving as an ‘outside’ advisor to themselves) and to potentially accept new ideas that they may already know but have been resistant to acknowledge before. Because reminding a friend that having a well-diversified portfolio is a good way to manage market risk can be easier than reminding themselves of the same thing (as they watch their portfolio value fall during a downturn); at the same time, clients are likely to respond to a friend with more kindness and empathy (versus the negative self-talk they can present to themselves). Thus, going through this exercise can calm and empower the client by revealing a more compassionate and relatable response that they come up with for themselves! Additionally, the advisor is afforded valuable insight into productive ways in which the client might want to respond to the situation.

Ultimately, the key point is that by finding ways to change their own narrative stories, a client can expand how they see themselves and better understand that they can change their role in the story. In this way, they can become empowered and more capable of preventing a stressful situation from compounding negatively. And advisors can play an important role in this exercise by facilitating the conversation and listening actively, enabling the client to craft a new narrative and potential next steps!

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With inflation reaching its highest levels since the early 1980s, the topic of rising prices has been on the minds of many financial advisors and their clients. And though many hoped that the spike in inflation that began in autumn of 2021 would pass within a few months (once holiday season demand cooled and COVID-related supply chain issues worked themselves out), it has instead persisted for longer than many originally predicted.

In the early days of this inflationary spike, the most common (and perhaps the best) advice for clients may have been to simply “wait it out”, since a brief rise in prices – uncomfortable as it may have been – was unlikely to have enough of an impact on long-term planning to warrant any drastic changes. But even though we are still a long way from the kind of inflation that plagued the economy in the 1970s and 1980s (when inflation averaged over 9% for a 9-year stretch), the continued rise in prices may have many advisors (and their clients) wondering if there is more that they can do to better position themselves for a prolonged bout with inflation.

One place to start may be to better understand how inflation is personally affecting each client. The headline Consumer Price Index (CPI) number that we see constantly represents an average inflation rate for the entire U.S. economy, but in reality, different households experience inflation in different ways depending on their lifestyle and where they live. Advisors can help clients calculate their own ‘personal’ inflation rate (and a downloadable template is included to make it easier to do so).

Another immediate way that advisors can help ease the impact of inflation for clients is to create a cash management strategy (i.e., a system for knowing how much cash to keep on hand and where to keep it) to avoid them having more cash on hand than is necessary (since, with interest rates on bank accounts so low, the excess cash is almost guaranteed to lose value to inflation even if inflation does fall back to pre-2021 levels).

Advisors can also address different ways clients can protect their savings for retirement and other long-term goals against inflation. The conversation could start with the one asset that is likely already in most clients’ portfolios: U.S. stocks, which have a lengthy track record of outperforming inflation over long time horizons. Additionally, advisors can discuss the role of TIPS in a portfolio (and answer some common questions such as whether it is risky to buy TIPS when inflation is at a multi-decade high, and whether it is better to buy TIPS directly or within a mutual fund or ETF). And because clients may have questions about other types of assets that are often associated with hedging inflation risk – such as gold, commodities, REITS, and, most recently, cryptocurrencies – advisors can help by discussing the actual track records of these assets to help clients make a more informed choice about how to strengthen their portfolios against persistent inflation.

There are other practical areas to give useful advice, such as tax planning (where clients might experience “bracket creep”, and therefore higher taxes, due to their income rising faster than the inflation rate used by the IRS) and property insurance (where, with construction materials and labor costs among the fastest-rising prices across the country, homeowners may find their existing insurance coverage is no longer sufficient to ensure the replacement value of their property).

Finally, advisors can ‘zoom out’ to the long view of clients’ financial projections for retirement, and address clients’ concerns about whether the plan’s existing inflation assumptions (which may predate the current inflation spike) are still realistic – and discuss how, when looking at the market’s expectations for future inflation in the form of the TIPS breakeven rate, investors still seem to be betting on a return to ‘normal’ inflation numbers after a short-lived increase. (Which bodes even better for clients’ plans given that investors have historically overestimated their inflation predictions!)

Ultimately, even though the goal of many advisors at the moment may be to encourage clients to continue to stay the course and avoid making rash decisions, there are still concrete ways that advisors can help clients better position themselves to withstand the current spike of inflation and improve their situation for the long term without drastically altering their existing plans. And even if this inflationary environment proves to be short-lived, the work advisors with their clients now can help them be better prepared for future unexpected increases in inflation – which, though we can’t control when they may happen, we can plan to help ensure they don’t get in the way of our clients’ ability to reach their goals.

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