A recession is coming – eventually.

Chicken Little is running amok among investors crying, “A recession is coming! A recession is coming!” And in the ways of Chinese whispers, the same phrase is likely finding its way into financial advisor’s offices on the lips of their clients, often with even more vehemence behind it. To stave off client panic – and hopefully save your ears from ill begotten forecasts of doom – here are nine strategies financial advisors use to prepare their clients for a recession.

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Plan early, then stick to it.

You know that saying, “By failing to prepare, you are preparing to fail”? “When it comes to preparing your clients for a recession, nothing could be more true,” says Kyle Ryan, a certified financial planner and executive vice president of advisory services at Personal Capital. Preparing for recession needs to begin early – the earlier the better. Work with your clients well ahead of market volatility to build a long-term plan that focuses on meeting their goals, Ryan says. When markets get rough, you can remind your clients how their plan is designed to get them through good times and bad, and that it only needs to change if their goals or situation have changed.

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Next:

A recession is coming – eventually.

Chicken Little is running amok among investors crying, “A recession is coming! A recession is coming!” And in the ways of Chinese whispers, the same phrase is likely finding its way into financial advisor’s offices on the lips of their clients, often with even more vehemence behind it. To stave off client panic – and hopefully save your ears from ill begotten forecasts of doom – here are nine strategies financial advisors use to prepare their clients for a recession.

Plan early, then stick to it.

You know that saying, “By failing to prepare, you are preparing to fail”? “When it comes to preparing your clients for a recession, nothing could be more true,” says Kyle Ryan, a certified financial planner and executive vice president of advisory services at Personal Capital. Preparing for recession needs to begin early – the earlier the better. Work with your clients well ahead of market volatility to build a long-term plan that focuses on meeting their goals, Ryan says. When markets get rough, you can remind your clients how their plan is designed to get them through good times and bad, and that it only needs to change if their goals or situation have changed.

Focus on what matters most to your clients.

As with all client interactions, preparing your clients for recession starts with their goals and experiences. “Advisors must have a thorough understanding of the client’s past investment experience, personal values and short- and long-term financial goals,” says Mark Schoenbeck, executive vice president and national sales director at Kestra Financial. “A recession will have very different ramifications on a client who needs their money in the next six months versus a client that doesn’t need retirement income for 30-plus years.” Knowing where your clients sit on their financial journey informs how they’ll be impacted by market downturns and thus should dictate how you prepare them for a recession.

Review the roles that different investments play in the portfolio.

The grass never looks greener than in bull markets. “When markets are running, clients may look at less volatile, less risky assets as a drag on portfolio performance,” says John Diehl, senior vice president of strategic markets for Hartford Funds. “But like any good team, success depends on each of the players fulfilling their position’s objectives when called to do so.” To help keep your clients diversified, Diehl suggests periodically reviewing the role each investment plays. “Going through the roster from time to time with clients can help curb their temptation to shudder quality investments during off-market cycles, leaving them wanting when the markets turn,” he says.

Use interval funds to limit liquidity.

“There is no greater way to destroy wealth than to sell your investments into a period of market turmoil,” says Mike Terwilliger, portfolio manager for the Resource Credit Income Fund. Your clients may know this already, but still that trigger finger likely twitches when markets decline. To deter the sell-low hamartia, Terwilliger suggests putting clients in interval funds. “Unlike typical mutual funds that offer daily liquidity, interval funds offer quarterly liquidity,” he says. “Hence, during a period of market panic, this structure limits an investors ability to sell into the downturn.”

Help clients to “experience” a downturn before it happens.

Another saying that could be applied to recession planning is: Practice makes perfect. Giving your clients the opportunity to work through recession-driven emotions can be an effective preparation technique. “Rather than waiting to be surprised by down markets, engage clients in conversation about those possibilities, so you can address emotions and introduce actions that could be productive, rather than impulsive or fear-driven, in a downturn scenario,” Diehl says. Well before a recession occurs, put on your therapist hat and ask your clients how a recession would make them feel.

Use real figures to put downturns into perspective.

To help you scenario plan for a recession, Diehl suggests using real data to put a recession in perspective. The media is bound to dramatize market swings, but you can counterbalance this by pulling the mask off the drama. For example, a drop of 200 to 300 points in the Dow Jones Industrial Average may sound extreme, but it “translates to roughly 1%, which is much less scary than the red arrows and bold headlines would suggest,” Diehl says. “Market volatility is an inescapable part of the investment experience, but context can help make it feel more manageable.”

Take advantage of technology.

Like your clients, you are not alone in preparing for a recession. Donna Bristow, managing director for North American Wealth at Broadridge Financial Solutions, suggests a hybrid approach to recession planning: Adding a computer element to your planning can give you an advantage in guiding clients through recession, she says, such as by helping “identify which stocks and sectors may provide safer harbors for clients.” You can also leverage technology to enhance your communication during scary times: “In confounding market environments, using emails, mobile messages and social media as vehicles to deliver valuable insights – including market updates, videos, useful tips, and webinars – will be more important than ever,” she says.

Communicate early and often.

Communication is key when recession fears loom large. “From Day One, advisors should proactively educate clients on market cycles and volatility and continue to do so throughout the duration of the relationship,” Schoenbeck says. “Regular client communication before and during turbulent economic times, in addition to reinforcement of their financial plan, will help put any worries at ease.” As much as Chicken Little newscasters love to forecast doom, the reality is that what the S&P 500 does on any given day is often irrelevant to your client’s goals. Sometimes they just need to be reminded of this.

Keep calm and invest on.

It may sound obvious, but one of the best things you can do to prepare your clients for a recession is to keep your own cool in all market environments. Clients take cues from their advisors much the way a child who falls down will decide if she should cry or not based on mom’s response. If you treat market movements – be they up or down – with calm, your clients will be more inclined to do so, too. So resist the urge to celebrate gains or overreact to losses. Instead, keep calm and invest on.

Ways to prepare investors for recession.

Plan early, then stick to it.Focus on what matters most to your clients.Review the roles that different investments play in the portfolio.Use interval funds to limit liquidity.Help clients to “experience” a downturn before it happens.Use real figures to put downturns into perspective.Take advantage of technology.Communicate early and often.Keep calm and invest on.1 of 12

Coryanne Hicks, Staff Writer

Coryanne Hicks is an investing reporter for U.S. News & World Report. She is an expert at ...  Read more

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