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Five Answers to Calm the Scared Voices in Your Clients’ Heads

When market fluctuations are paired with rumors of hydrogen bomb testing in North Korea, the recent acts of domestic terrorism and a long-in-the-tooth bull market, it can all be a little frightening and overwhelming.

It’s at a time like this that it’s best to temper the catastrophic voices in our head with some research-based truths about how financial markets work.

For each of the rash, fear-induced common thoughts clients may have (below in bold), advisers can offer a counter argument fueled with a dose of realism:

“It’s been a good run, but it’s time to get out.”
From 1926 to 1997, the worst market outcome at any one year was pretty scary, -43.3 percent; but consider how time changes the equation—the worst return of any 25-year period was 5.9 percent annualized. Take it from the Rolling Stones: “Time is on my side, yes it is.”

“I can’t just stand here!”
In his book, What Investors Really Want, behavioral economist Meir Statman cites research from Sweden showing that the heaviest traders lose 4 percent of their account value each year. Across 19 major stock exchanges, investors who made frequent changes trailed buy-and-hold investors by 1.5 percent a year. Your New Year’s resolution may be to be more active in 2016, but that shouldn’t apply to the market.

“If I time this just right…”
As Ben Carlson relates in A Wealth of Common Sense, “A study performed by the Federal Reserve…looked at mutual fund inflows and outflows over nearly 30 years from 1984 to 2012. Predictably, they found that most investors poured money into the markets after large gains and pulled money out after sustaining losses—a buy high, sell low debacle of a strategy.” Everyone knows to buy low and sell high, but very few put it into practice. Will you?

“I don’t want to bother my adviser.”
Vanguard’s Advisor’s Alpha study did an excellent job of quantifying the value added (in basis points) of many of the common activities performed by an adviser, and the results may surprise you. They found that the greatest value provided by an adviser was behavioral coaching, which added 150 bps per year, far greater than any other activity. At times like this is why investors have advisers so don’t be afraid to call them for advice and support.

“THIS IS THE END OF THE WORLD!”
Since 1928, the U.S. economy has been in recession about 20% of the time and has still managed to compound wealth at a dramatic clip. What’s more, we have never gone more than ten years at any time without at least one recession. Now, we are not currently in a recession, but you could expect between 10 and 15 in your lifetime. The sooner you can reconcile yourself to the inevitability of volatility, the faster you will be able to take advantage of all the good that markets do.

This post originally appeared in the Brinker Capital blog. It is intended for informational purposes only. The views expressed are those of Dr. Daniel Crosby and are not intended as investment advice or a recommendation. The Center for Outcomes is a subsidiary of Brinker Capital. Brinker Capital and Nocturne Capital are not affiliated. You can find more of Crosby’s work on remaining calm in scary times here. 

Daniel CrosbyDaniel Crosby
Executive Vice President, The Center for Outcomes
President, Nocturne Capital
Atlanta, Ga.

 

Editor’s Note: Dr. Daniel Crosby will be leading a session on behavioral finance at this year’s FPA Retreat at the Wigwam Resort in Phoenix, Ariz. His session will take place at 9:55 a.m., Thursday April 28. To register for FPA Retreat, click here.

You may also be interested in the following related FPA content: 


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The Power of the In-Home Meeting

In my blog, and its companion Journal of Financial Planning article titled, “How to Deliver Empathetic Service and Gain Client Loyalty,” it’s emphasized that a client transforms from a revenue stream to an asset in the presence of loyalty. Each loyal client that tells others of his or her experience with an adviser’s service package represents a vine of fruitful relationships.

The common thought is loyalty begins after the planning and investment solution is executed, service experiences occur, and benefits result. In fact, client loyalty can begin during the sales process.

Bringing Balance to a Fledging Relationship
A relationship has a greater chance of success when there is balance between the two parties. Unfortunately, a wealth management relationship is inherently imbalanced because the prospect is asked to divulge private financial, family and personal details while the adviser is not expected to reciprocate.

The typical meeting in which the prospect sits across a table from the adviser (or worse on the other side of a desk) introduces unnecessary barriers to making the fact-finding process more free flowing. An in-home meeting strips these barriers away.

A Powerful Tandem
An advisory firm’s marketing program reaches a higher ROI by increasing the sales yield from one funnel stage to another. My last blog suggests that during the interest-qualifying stage, the adviser prepares a tailored education presentation (free of charge) for the client’s number one identified need, anxiety, or aspiration. (Note: the recently released FPA/LinkedIn study “Financial Professionals and the Future of Thought Leadership and Social Media” confirms how important education is to clients: 76 percent of respondents rate it “Somewhat Important” to “Critical”.) This allows the prospect to “test drive” the adviser’s services and measurably de-risk the impending relationship decision.

Taking this one step further, conducting this “test drive” in the prospect’s home significantly increases the yield in turning a prospect into a client. This combination sparks client loyalty.

The Real Productivity Measure
An adviser may view an in-home meeting as an inefficient marketing step given the overhead of driving to and from the prospect’s residence. While this meeting takes, say, three times as long to conduct from beginning to end compared to one where the prospect comes to the adviser’s office, this is a misplaced analysis.

The marketing plan’s ROI should be measured on the time it takes a lead entering the funnel to becoming a client. Using this more realistic business measure, an in-home meeting often dramatically decreases the time to a successful close.

Prospects appreciate the increased effort to come to their home and it conveys important messages such as: “I’m valued as a person not just as a business transaction,” and “My needs and anxieties merit this attention.”

Visiting a home is also a treasure trove of information for an adviser:

  • Neighborhood demographics
  • Family lifestyle
  • Family structure
  • Family interactions
  • Hobbies and collections

Keys for Successful In-Home Meetings

  1. Standardize the structure. Formulate a workflow process for conducting the meeting such as a pre-meeting mailing, an agenda, a presentation leave-behind and a checklist of next steps.
  1. Make the offer. For some people, an in-home visit pushes privacy concerns. If there’s reluctance, explain the meeting’s purpose, particularly the decision at hand (for example, “You’re entrusting your wealth and peace of mind to me, and I want you to be as comfortable as possible”). Highlight that it is a standing offer for any future meeting.
  1. Remove the hosting stress. The meeting’s purpose is to provide education on the prospect’s top need or concern and not about creating stress for the meeting itself. Offer to bring refreshments such as coffee plus baked goods if your meeting is in the morning, a light snack if your meeting is in the afternoon, or dessert if your meeting is in the evening.
  1. Meeting precision. Conducting the meeting with precision conveys the value of your prospect’s time. This means being on time, managing to the agenda and having organized materials.

It’s a Relationship!
While financial services is the content, what’s actually being bought and sold is a relationship (see my blog post titled “Your Product is You”). Face-to-face meetings are critical components of due diligence. For the prospect, this involves the adviser’s personal presentation, relatability, trust, care and concern. These core decision criteria come alive when an adviser invests his or her time in a meeting at the prospect’s home.

A prospect contemplates a substantial financial commitment when seeking an investment relationship—for a high-net worth family, this will be thousands of dollars per year. Taking the time to meet in a prospect’s home expresses appreciation for this opportunity and shines light on the adviser’s service role.

Kirk LouryKirk Loury
President
Wealth Planning Consulting Inc.
Princeton Junction, New Jersey


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Connect with Families of Clients with Diminished Capacity

MauterstockIt isn’t an easy situation when your client starts losing their mental capacity.

Author and planner Robert B. Mauterstock, CFP®, CLU, ChFC, knows this all too well. Only it wasn’t his client, it was his late mother. She was in her early 80s when she was at a doctor’s appointment. Her longtime nurse greeted her only for her to ask, “Do I know you?”

She lived with Alzheimer’s ten years, so Mauterstock came to know the ins and outs of living and working with someone with the disease. Chances are you will be working with clients who are going through something similar as 46 percent of people over the age of 85 will develop dementia, Mauterstock said.

Mauterstock presented at the FPA Annual Conference—BE Boston 2015—a session titled “The Seven Steps to Protect Yourself, Your Practice and Your Clients Who Have Diminished Mental Capacity.” In it he said one of the steps to working successfully with clients facing diminished capacity is to connect and build trust with the families.

A Fidelity Investments Study Shows that 84 percent of planners want help with clients who have dementia and Alzheimer’s. The following are the seven steps Mauterstock said these planners can refer to:

1.) Recognize the Behavior Patterns. When your clients start calling your office asking for their accountant, chances are something is off.

2.) Develop a Diminished Capacity Checklist. This includes designating a client advocate and power of attorney—somebody who is privy to all your client’s details and will be able to make decisions for them. Client advocates and your client must fill out a “Third-Party Sharing of Information” document.

3.) Learn How to Protect Your Client’s Assets. Know the ins and outs of Medicare—for example it only covers three nights in a hospital—nothing less. Research and present the best long-term care insurance for your client.  

4.) Build a Network of Professionals. This network should include an elder law attorney, a geriatric care manager, and an insurance agent.

5.) Build a Relationship with the Client’s Family. The entire family is going to be affected by this situation so call a family meeting, connect with them, and help them through it. A side benefit is that the family may want to continue working with you later on.

6.) Utilize a Single Source with All Relevant Records. Mauterstock calls this the Lifefolio—a PDF document put on a flash drive that includes all medical insurance information, usernames and password for all accounts, and the like.

7.) Create an Investment Policy Statement. This is to remind the client what your plan was and how it works. The client advocate should also have access to this.

Find more information on Mauterstock’s BE presentation here, including the presentation slides. You can also earn 1 CE credit by taking the exam for this particular presentation.

HeadshotAna Trujillo
Associate Editor
Journal of Financial Planning
Denver, Colo.