Advisers were failing to acknowledge the five common mistakes investors made during down markets and required a better approach.
"I've seen a lot of advisers in different parts of the market and when you look over the last 20 years, it doesn't matter which down market you're talking about, there's five things investors typically do," Russell Investments head of strategic wealth and partner solutions Scott Fletcher told InvestorDaily.
Australian investors ran to cash, remained invested domestically, expected advisers to do something that resulted in tactical approaches, abandoned the strategy entirely and wanted to cut costs out of the investment plan through lower-cost solutions, Fletcher said.
"Advised clients are exhibiting exactly the same profile as the cycle of investor emotions. In other words, applications are at their absolute highest when markets are at their peak and redemptions are at their largest when markets are at their lowest," he said.
"We're seeing this right now."
It was the job of the adviser to build wealth structures that could handle the ups and downs, Fletcher said.
Advisers that educated their clients regularly had a more stable turnover when things got tough, while advisers that didn't see clients often would experience a lot of churn.
"There's nothing new here, it's what good advisers should be doing," he said.
"Advisers that have a well thought-out plan for their clients, inform, educate and have multiple touch points throughout the year, would see less churn and less of the common mistakes being made when times get tough."
On the other hand, advisers lacking strong relationships would be more likely to capitulate and do whatever the client wanted, encouraging the same mistakes to be made again.
Advisers could prepare themselves by having strategies in place specifically for use in a down market, Fletcher said.
Diversification, active management, capital protection, yield enhancing and tax awareness were the key areas to focus on when the common mistakes emerged.
"If advisers have a [solution] in their war chest across each of these volatile market strategies, then they'll be better placed to service the different needs of their clients during a down market," he said.
