Why clients are so angry

Clients’ anger stems from frustration with the way the financial services system operates. While these sentiments are more pronounced in the U.S., Canadians have many of the same concerns. And these worries aren’t limited to do-it-yourself or older investors or those with modest assets; they cut across a broad range of ages and wealth levels.

Today’s investor psyche has fundamental implications that will require changes in how you interact with your clients. Before getting into how to respond, let’s look at what’s driving today’s mindset.

More than at any time since the 1930s, investors feel the playing field is tilted against them. This has contributed to a “buyer’s strike” on stocks. So, while existing holdings aren’t being sold, new money is staying on the sidelines, even in the face of record-low returns on bonds and cash.

 

> Rebuilding Confidence

When it comes to financial advisors, clients tend to be skeptical rather than angry. Even when clients like and respect their advisors, many say their advisors had oversold their ability to manage risk. Even “conservative” portfolios were hit harder than was seen as being possible, both in 2008 and in the current business cycle. Another criticism is that advisors have been too slow to act in the face of changing developments.

Whether these complaints are fair is irrelevant because they are real in the minds of many clients. Given that reality and the extent to which the confidence of many clients has been shaken, here are some guidelines for your conversations to address some of today’s client anxiety:

 

> Make Face-To-Face Meetings Your Priority

Many advisors rarely meet with clients. Depending on your business model, there may be annual reviews, but sometimes not even those.

Clients may be OK with this in normal times. But recognize that these are not normal times. For the period ahead, your top priority should be offering to meet with any clients who are anxious or want to discuss their portfolios. Even if a meeting can’t take place for three or four weeks, the fact that it has been scheduled will reduce some of the stress that clients feel.

 

> Start By Listening

With many clients, feeling genuinely listened to is the first step on the path to rebuilding trust. In Stephen Covey’s bestseller, The Seven Habits of Highly Effective People, he put it well: “Seek first to understand, then to be understood.”

Start client meetings with something as simple as: “Markets have made many investors anxious. Tell me how you’re feeling.” Encourage clients to talk about their concerns with followup questions. The best way to engage clients is by getting them to open up about how they really feel.

 

> Acknowledge Today’s Real Challenges, But Don’t Overstate Them

Straight talk helps build trust. That means being up front about the real concerns for the economy. Don’t sugarcoat the challenges around debt, unemployment and housing prices throughout the developed world.

At the same time, you need to provide positive perspectives that help balance all the bad news. Given the skepticism about stocks as an asset class, big-picture conversations about current price/earnings multiples vs historical levels won’t always do that. As well, phrases such as “focus on the long term” and “remember that stocks outperform over time” have worn thin with many clients. Instead, hone in on the earnings and financial health of companies that clients know and have confidence in: Apple, Procter & Gamble, and Shoppers Drug Mart are all good examples of familiar names that reassure clients.

 

> Re-Examine The Role Of Investments That Generate Cash 

Many clients have money in cash that should be invested to achieve long-term goals. Provided your clients don’t need access to this money for some time, an approach that can increase client confidence and get money off the sidelines is to focus on investments that pay steady income of 3%-5%. Examples include blue-chip consumer staples, utilities and telecommunications stocks that pay healthy dividends, as well as investment-grade bonds.

Share the research showing the historical market outperformance by companies that consistently raise dividends vs those that hold them steady or don’t pay dividends at all. And when deploying cash into the market, discuss doing this in stages over the next year. Not only does this reduce the risk of investing just before a big drop, but it sends your client the message that you’re not in a hurry to get your hands on their money.

 

> Have Candid conversations About The Price Of Risk Aversion

The current market conditions create the need to talk about the losses that clients can withstand and still sleep at night, on the one hand, and the true cost of avoiding mid-term losses, on the other. In some cases, this conversation will result in adjusting the risk in portfolios downward. In others, clients will conclude that they need to change their views on how much volatility they can live with. And while studies generally question the value of guaranteed products, sometimes the guarantees on segregated funds or guaranteed minimum withdrawal benefit investment vehicles can make the difference in creating comfort with more volatile investments.

  

> Revisit Portfolios Often

A common client complaint is that advisors are too passive and portfolios are too static. Many clients feel they’re just sitting there, “taking it.” That’s especially true of clients who are invested in mutual funds and other managed products, who often are unaware of changes to their portfolios.

During periods of volatility, clients want to feel that their portfolios are changing to take advantage of opportunities. A common complaint from clients is: “If my investments made sense a year ago, given all that’s gone on, how’s it possible that exactly the same investments make sense today?”

In response, make a commitment to update clients quarterly on what’s happening to markets and any changes in their portfolios that result.

 

> Identify Options To Help Clients Control Their Financial Future

A good advisor’s most important role is to work with clients to create a financial path to their clients’ long-term objectives. In the process, you should help your clients understand the options and trade-offs available to achieve their goals. That process can give clients a feeling that they have choices and at least some measure of control over their financial future. If your conversations with clients achieve nothing else, then the time invested in this exercise will be well spent.

Winston Churchill once said: “The pessimist sees the difficulty in every opportunity. The optimist sees the opportunity in every difficulty.”

Right now, many clients are overwhelmed by all the bad news surrounding them. Great financial advisors are emotional anchors for clients — keeping the highs from being too high and the lows from being too low. By putting these steps in motion, you will provide balance and help clients recapture a sense of realistic optimism about their future.  IE

Dan Richards is CEO of Clientinsights (www.clientinsights.ca). For other columns by this marketing expert, visit
www.investmentexecutive.com.