There is no shortage of opinions, viewpoints and forecasts regarding what the capital markets will do over the next 12 months (or even 12 minutes). Pundits, analysts, and portfolio managers fill the screens of televisions, laptops, tablets, and phones sharing predictions, probabilities, and possible outcomes for 2019. Allow me to preface this article by saying I am not one of those people. We at Red Rock Strategic Partners do not profess to offer expertise on the capital markets and will leave the prognostication to those that do. What I can state as fact is that no one knows with absolute certainty the future of the capital markets. We do know that, at this moment, they are volatile and uncertain.
While we cannot predict the future, we can prepare based on the information we have available. So rather than dealing with the unknown, let’s review some specific tactics that if executed, will drive client value and present growth opportunities for your practice in the current environment.
First, we must address what we know. If left to their own devices, clients will draw emotional, and often unfounded, conclusions about the market and about your value. Any time there is increased volatility, clients question their financial advisors, the validity of their portfolio positions and the fees and commissions that they are paying. A bull market is a great deodorant that washes off quickly in the presence of anxiety. If the value to your clients is predicated on your ability to outperform benchmarks, then you better be well-prepared to defend your trades and positions when performance is poor in the mind of clients. Many advisors spend an inordinate amount of time on statement and performance reviews, especially when the waters get choppy. However, our recommendation at this time is to do the following:
Get knee-to-knee - Proactively reach out to clients to acknowledge the market volatility and their fears about the immediate future. While this seems obvious, we find that many advisors are simply sending emails with market position pieces. If relationships are built on active and open communication, this is the right time to make a call and/or set a face-to-face appointment. While face-to-face appointments are time consuming, ideally we want to not only hear our clients’ fears and concerns but we want to see their fears and concerns through their body language. (For an impressive review of the power of body language, we highly recommend the Ted Talk featuring Amy Cuddy). The fact that you are making time for your client in a face-to-face context will be remembered for a long time.
Start with questions, not with answers – It has been our observation over the years, that we as advisors think we need to have an immediate answer to our clients’ questions or concerns. Human nature dictates that humans simply want to be heard. Ask your clients to share their thoughts on the current market conditions, what they have been reading and what troubles them most. Make sure that they have the facts straight about their own portfolio, the market and the economic uncertainty. We can assuage clients’ fears simply by allowing them to be heard in a safe environment. Remind clients that we always have four key levers of control which include: modifying the goal or objective, enhancing the funding toward the goal or objective, revising the allocation in a dynamic environment, changing the time horizon to achieve the objective
Stop talking benchmarks and start talking goals – We encourage the advisors that we coach to create more constructive dialogue with clients by conducting a goals-based investment review focused on reviewing or reestablishing their investment policy, risk tolerance profile and progress to their objectives rather than simply reviewing the net performance. We know that most client decisions are driven by emotion rather than rational thought. This conversation is a way to reset the level of risk your clients are willing to accept in relation to their overall financial objectives. The desired outcome of this client conversation is to reestablish an acceptable range of outcomes for their portfolio adjusted to the current and future level of risk they are willing to tolerate.
Do something NOW! - Far too often during times like these, we hear advisors offer trite recommendations that frustrate clients such as “stay invested” or “we are investing for the long term not the short term so don’t worry.” Clients don’t want to hear this. They were worried when they came into your office. They want to know what should be done now and what you are doing to protect them. Utilize this conversation as a time to talk about changes that should be made to the portfolio to simplify their holdings and strategy as well as lowering costs while taking advantage of buying opportunities. Perhaps clients with portfolios that have concentration risk should be diversified or single holdings that have been accrued over time should be minimized. Often clients have concentrated or conflicting fund holdings that can be managed proactively with an eye toward tax efficiency. The bottom line is to have a plan and proactively make changes on your clients’ behalf. A conversation with your client that starts with, “Here is what I think we should do right now….” will assuage their fears and, more importantly, recognize the value that you are bringing to the table.
Demystify the bigger themes - Now that we have established new baselines for risk levels and outcomes ranges, we can move our discussion to the macro topics that are most likely driving client emotion. Discussing these macro issues requires advisors to have a well-reasoned position on such issues (an unsettled political landscape, a potential trade war with China, interest rate uncertainty, etc.) and communicate them in a clear and concise manner. Because you have dealt with the clients emotions up front and described a tactical plan of attack, your client will be more open to listening and understanding the bigger picture issues and opportunities. Your objective in this stage of client conversation is to engender confidence that you are well educated on their concerns and most importantly, understand how each relates to their individual situation.
Getting back to basics is essential in times of uncertainty. The best way to reestablish control of your communication process is through preparation and agendas. This allows you to be proactive and productive in any form of client interaction. The 5-step formula we have laid out for client interaction above helps you achieve control, instill confidence and trust, and create revenue opportunities.
Get knee to knee
Start with questions, not with answers
Stop talking benchmarks and start talking goals and objectives
Do something now! The tactical plan
Demystify the bigger themes
As we often share, “To know and not to do is the equivalent of not knowing.” Make something happen!