With all the tariffs, trade wars and other upheavals going on in recent months, some experts have argued we’re teetering on the brink of a bear market, if not an outright recession. Unfortunately for clients, bear markets and bad news tend to go hand in hand. However, bear markets can also spell disaster for advisors.

Economic downturns historically have produced increased E&O claims for financial professionals. Yet how advisors handle the delivery of bad financial news with their clients can make all the difference in the outcome.

The right strategies can refocus clients on planning and solutions, while minimizing the risk that you’ll be accused of professional negligence or a breach of your fiduciary duty. Here’s what to know about your bear market E&O risks.

Lions, Tigers and Bear Market Risk Strategies

So far in 2025, the government’s new tariffs proposals have changed 22 times, corporate bankruptcies have hit a 15-year high, and the inflation of even simple kitchen staples like eggs continues to make headlines. It’s a recipe for market uncertainty, if not more.

Yet while a lot is happening, most industry veterans aren’t fazed. Many are aware of research that suggests stocks which lose an average of 35% in a bear market gain 111% on average in a bull market. The experts also know all about bear markets’ relatively high 20%-loss thresholds, short lives and common occurrence.

However, it’s helpful to remember that your clients see a potential bear market from a different perspective. Many will read the latest news, see their own numbers in the red and assume the worst — unaware of options to model impacts, rebalance portfolios, harvest tax losses or perhaps simply stay the course. A proactive approach to this type of bad financial news can calm fears and reduce claim risks.

To start, you can simply ramp up the frequency of your ongoing communications. This can be especially helpful for clients who haven’t gone through a downturn before. Having ready access to the latest facts and important context makes many challenging situations more bearable, and a bear market is no exception.

Advisors are also using a whole suite of tech tools to arm clients with knowledge and solutions quickly and efficiently. InvestmentNews reports that some are using eMoney Advisor’s client portal to provide clients with a quick overall financial picture, while Holistiplan is used for active tax management and portfolio rebalancing.

Hidden Levers has been tapped to help with stress tests modeling out potential impacts from tariffs and inflation, while FP Alpha is helping find tax-loss harvesting opportunities. These tools are largely automated, making it quick and easy for clients to feel like they are regaining control without extra work from you.

Strategies for Delivering Bad News as an Advisor

When it is time to deliver particularly bad news to a client, the way you go about it can make all the difference. The wrong approach can leave a client feeling confused, shocked and angry — a bad combination that can lead them to believe they have been wronged by you and to seek a legal remedy. The right approach can help focus a client on solutions and a way forward instead of blame. These strategies can set you up for success:

1. Set the Stage

You know bad quarters are inevitable, new clients may not. Before the market even takes a turn, you can minimize your risk and a new client’s worries by explaining that the topic of bad news will eventually come up. This can help set expectations and moderate future negative reactions.

2. Act Quickly

In insurance, quickly reported claims have the best outcomes. Yet even before a claim, timely action can lead to a better outcome for advisors and clients. Don’t put off difficult conversations. A proactive approach builds trust and clients won’t feel like you’re hiding something from them.

3. Practice Empathy

Practicing empathy — the ability to put yourself in someone else’s shoes and understand their feelings — can help bridge the gap between you and your clients. That’s especially important when the conversation gets tough and clients are looking at a loss, even if it’s temporary.

4. Communicate Clearly

Ambiguity and imprecise language can actually make it harder for a client to grasp what is wrong and make informed decisions about what comes next. You can help show respect for your client and confidence in their ability to handle a setback with clear and direct explanations.

5. Be Concise

When it comes to delivering bad news, advisors may feel the need to over-explain. However, a short but clear explanation is often better. Provide an overview of the facts and then let the discussion unfold naturally as the client asks their questions and you provide the details.

6. Say It in Person

Mail and email are crucial forms of everyday business communication, but for bad news they may be the wrong medium. Picking up the phone or scheduling an in-person sit-down gives the conversation the attention it deserves and helps prevent potential misunderstandings.

7. Document in Writing

Documentation of all your official communications, the professional advice you offer and verification of a client’s instructions all play a key role in your defense if you ever face a claim. Send a letter or email after your meeting to make sure everything is documented.

8. Give Context

Remember that a particularly costly loss or setback can take the client’s focus away from the bigger picture. It can be a good idea to contextualize what’s happened and help mentally walk the client through any impacts on their financial plans or long-term goals.

9. Project Confidence

Clients are often able to pick up on nonverbal cues, such as tone of voice or avoidance of eye contact. But courage is contagious. Projecting confidence as you navigate bad news and remaining focused on a solution can help reassure clients of a brighter future.

10. Practice Active Listening

Active listening can help improve mutual understanding in difficult circumstances. Give cues you’re listening carefully, such as verbally acknowledging client statements, rephrasing client questions during answers and checking to make sure your advice is understood.

11. Communicate the Intangibles

A financial analysis is rarely complete with just the numbers. Many factors that aren’t as easy to grasp could be playing an important role that’s worth exploring. Take time to revisit relevant qualitative dimensions of a client’s strategy, fund or asset performance.

12. Have a Gameplan

Before opening up the conversation, it’s crucial to understand what went wrong, what needs to be discussed, how to approach the matter and what comes next. Go into meetings with a gameplan for your messaging, answers to likely questions and your recommended actions.

Managing Your Risk in a Bear Market

Avoiding a bad news bear market situation as an advisor isn’t always easy. Claims during a negative market can occur for a number of reasons, including trading errors, excessive fees, product suitability complaints and more.

In many cases, advisors have done everything right, including proactively communicating about the risks of a bear market or downturn and staying focused on solutions. But with an increasingly litigious environment, that isn’t always enough.

In a market like today’s, the right E&O insurance is important. Lockton Affinity Advisor offers tailored E&O solutions that protect you against a broad range of professional exposures. Plus, fiduciary coverage is included automatically. This policy meets ERISA standards, including services provided as an ERISA 3(21) and 3(38) advisor, as well as requirements specified by key industry custodians.

Find out more about the Lockton Affinity Advisor Insurance Program to see our full range of solutions for your firm.