Talking Clients off the Ledge: Important Client Conversations

Jan 30, 2020 | HomePage, Market & The Economy | 0 comments

Estimated Time To Read: 5 minute(s) 37 seconds

When market conditions become volatile and scared clients are on the verge of panic about the potential to lose even more money, financial advisors are faced with the challenge of “talking their clients off the ledge.” In other words, ensuring they don’t make potentially disastrous investment choices such as leaping out of the market near the bottom and risk missing the recovery. Encouraging clients to stay on course during these times can be easier said than done, as simply advising clients not to panic, doesn’t necessarily help them to do so.

Alternately, when the pendulum swings in the other direction and markets are ramping upwards, clients can also become overconfident and as optimism begins to kick in… (regardless of the additional risk – lest we forget Bitcoin three years ago), and less of the poorly performing ones in their portfolios (that may have simply been the conservative diversifiers). This introduces yet another challenging conversation, that of advising clients not to be over-confident in the heat of (a good) moment.

In a recent podcast, US based Michael Kitces and financial advisor communication expert Carl Richards discuss how to talk you off the ledge from ‘scary’ markets and then explore the flip side of the situation and how to keep you from making bad decisions in the midst of a raging bull market.

They propose using a three-part pyramid framework: the Plan, at the foundation of the pyramid (representing the financial plan itself that was initially developed around your personal values and goals); the Process, in the middle (i.e., the method whereby an advisor helps you determine how those values and goals will become reality); and the Product, at the top of the pyramid (which are the tools that were chosen but that are now the focus of your fears and anxieties).

By using this approach, we can draw your attention away from the initial cause of alarm, i.e. the branches where the irrational ideas driven by emotional turmoil began to bud, back to the grounding roots of your financial plan, which (as you’ll be reminded) was built around your own personal values and unique goals. Thereafter, once you are (hopefully) back at a place where your point of reference is centred on your foundational values and goals – instead of external, uncontrollable news or events that initially caused the concern – that you can review actual data and evidence and how the original plan had in fact factored in the potential for both good and bad outcomes from the outset.

Because changing the perspective back to the fundamentals of what they’re trying to accomplish can have a huge impact on a client’s behaviour; without that context (and especially under the influence of sensationalized market news), the reasoning behind the product can be easily forgotten and difficult to understand, making that product seem arbitrary and potentially senseless in a turbulent environment. By contrast, with the (reminded) context of the plan, staying within the parameters of the client’s plan will almost always now seem the best course of action for them to weather whatever turmoil the market might be experiencing at any given moment.

Ultimately, the key takeaway from this is that by establishing trust through a connection built on empathy, we as advisors can help troubled clients remember how the foundation of their plan, based on their personal values, was used to develop the unique portfolio and recommendations designed to bring their financial goals to fruition. And by re-centering your focus back to your original plan, we can make all the difference in helping you maintain the grit you’ll need to stay on course regardless of whatever transient turbulence you may perceive.

In South Africa, we are expecting a downgrade, however, the market outcome is far from certain. There will no doubt be major movements in the days preceding and following the announcement. The problem is that most experts believe that the downgrade is effectively priced in. The natural tendency is to try and do something about it in the short term, but typically this is where clients make their biggest mistake. We have paid skilled asset managers to do this work for us. Focus on your personal goals and rather stay the course.

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