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Communicating With Clients in Difficult Times

How tax practitioners can remind their clients that markets do recover, by putting today’s market decline in historical perspective.

January 2009
by Michael Eisenberg/The Tax Adviser

At the time of this writing, the financial markets are facing a turbulent time, but they have been there before. Markets — all markets —go up and down. Sometimes the fluctuations feel worse than others. The important thing to remember is that markets recover. It is up to tax advisers to remind their clients of that point and to do so by putting this market decline in historical perspective.

Revisit Client Plans

Over the years, studies have shown that clients continue to regard their CPAs as their most trusted advisers. This trust is well deserved and well earned. Clients count on these trusted advisers for counsel in turbulent times, offering practitioners the opportunity to discuss at least the following three concepts with their clients:

  • Is the client’s plan still valid or does he or she need to make a change? In turbulent times, it is important to revisit the client’s original financial goals and the time horizon for achieving them and to review market results in that context. Overreaction can be just as dangerous as inaction in these situations. Finding the right balance is not easy. The objective approach is to first and foremost revisit the assumptions behind the financial plan and investment strategy and make sure they are still valid.
  • What is the client’s exposure to risk and should anything be done to minimize risk? Having a diversified portfolio should help to mitigate some of the risk of being overexposed to individual stocks or sectors that have faced significant declines. In addition, based on a client’s goals, time horizon, and risk tolerance, a portion of the portfolio may be allocated to fixed income to minimize losses. But risks go beyond the investment market — practitioners must discuss individual clients’ situations and determine what a decline means for them, their businesses, and their personal and financial goals.

This article was excerpted from The Tax Adviser. Read the full article here (PDF).

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