Client's Nervous About Brexit?

Financial Planning Post-Brexit: How to Quell Clients’ Fears

Financial Planning Post-BrexitWhat is Brexit?

The term “Brexit”—a merging of the words “Britain” and exit”—is a shorthand way of referring to the United Kingdom (UK) leaving the European Union (EU). On June 23, 2016, a referendum was held and UK citizens headed to the polls to vote on just one question: “Should the United Kingdom remain a member of the European Union or leave the European Union?”[1] More than 30 million people voted and “Leave” won by 52% to 48%.[2] Prime Minister David Cameron, who had urged the country to vote Remain, announced his resignation following the vote’s results and will step down from his position in October.

Brexit’s effect on the U.S. economy

Shock over the UK’s vote to leave the EU and Prime Minister David Cameron’s subsequent resignation sent global financial markets into a tailspin. The U.S. markets were not left unscathed and on Friday June 24, 2016 (the day after the UK’s Brexit vote), the U.S. stock market experienced its worst drop in 10 months. The Dow Jones industrial average fell 3.4%, Standard & Poor’s fell 3.6%, and the Nasdaq composite fell 4.1%.[3] It is too soon to tell whether the U.S. market’s reaction was an overreaction or the start of a bear market. No one knows if Brexit will only have minimal, short-term economic impacts or if Brexit is indicative of the beginning of the end for the EU, which could have long-term impacts such as the start of another great recession.

How to quell your clients’ fears?

As a financial advisor, you’ve likely been ambushed by panicked phone calls, emails, and visits from many of your clients. During this period of uncertainty, you must be a “hand-holder” and do your best to quell your clients’ fears and reaffirm their trust in you. You should be honest and transparent with your clients; while you can’t predict the future, you can keep your clients prepared for a variety of outcomes. That’s why when it comes to giving investment and financial planning advice, you should make sure your clients have balanced portfolios.

Make sure you emphasize the importance of sticking with their balanced portfolio, no matter what they are hearing from talking heads on the news or their friends or reading in the paper or on the web. If your client’s portfolio is heavy in equities, this would be a good time to help them build a more balanced portfolio in case Brexit turns out to be a catalyst for the start of a bear market.

It can be enormously difficult to buy when others are selling and to avoid high-quality bonds because you think rates will rise, but you don’t want to repeat the mistakes so many financial advisors made during the last bear market. As Warren Buffet says about being an investor, it is wise to be “fearful when others are greedy and greedy when others are fearful.”[4] Remind your clients that uncertainty is always part of the investment and financial planning equation—and this will not be the first nor the last potential crisis you may have to weather together.

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Summit Brokerage Services, Inc. is part of Cetera Financial Group®, a leading network of independent retail broker-dealers. Summit Brokerage provides a broad range of securities brokerage and investment services to primarily individual investors. Summit Brokerage also sells insurance products, predominantly fixed and variable annuities and life insurance through its subsidiary, SBS Insurance Agency of Florida. Summit Brokerage also provides asset management services through its investment advisor, Summit Financial Group, Inc.

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