August was a brutal month for stocks, with huge daily losses.

Will that stumble turn out to be a precursor of another 2000-2002 or 2008-2009 bear market, where wealth was halved? Or will it prove to be another May 2010 or May 2012, which in hindsight turned out to be speed bumps in a six-year bull market?

For financial advisors, it is too soon to say. It wasn’t too soon, though, to reach out to clients and put the summer slide into perspective.

I called clients regarding the recent downturn and explained what was going on in the market,” says Allan Katz, president of Comprehensive Wealth Management Group LLC in Staten Island, N.Y. “This was not a big issue for those who have been with me for many years because we have already gone through this.”

Communicating during downturns is the best way to strengthen client relationships, Katz says.

“It also gives them the best chance for the best outcome,” he says. “By explaining what is happening and offering proper recommendations we can keep our clients from making emotional knee-jerk reactions, which usually end up being the wrong decisions.”

THE CHINA SYNDROME

Bill Van Sant, senior vice president atGirard Partners, a Univest wealth management company in King of Prussia, Pa., reports that advisors at his firm called clients who were affected the most, including those in or near retirement.

“Retirees will be more anxious about volatility because they are in the distribution phase,” he says. “For people who are significantly younger, volatility is normal and their goal is to fund the account.”

In August, Van Sant explained to clients that the pullback was brought on by news from China, which created fallout across all markets.

“There was no news coming from the U.S., and it had been years since the last correction. China may impact the markets for a week or so but it doesn’t directly affect a client’s portfolio,” Van Sant says.

“This was much different than 2008, when we saw U.S. banks having significant trouble,” he says.

Clients were reminded that volatility is actually healthy, as it provides buying opportunities.

“Patient investors, who can tolerate this volatility, have been rewarded with superior returns over the years,” Van Sant says.

Proactive client communication, especially during market volatility, is as important, if not more important, than actual portfolio construction, he says.

“My advice to individuals in college looking at a career in investment management or financial planning is to take more courses in psychology,” Van Sant says. “They will often use those skills when interacting with clients in all types of markets.”

Donald Jay Korn is a New York-based financial writer who contributes to On Wall Street and Financial Planning.

Donald Jay Korn

Donald Jay Korn is a New York-based financial writer who contributes to Financial Planning and On Wall Street.