There's no doubt that professional advisors grasp the concept of alpha. It's generally understood to be the risk-adjusted value that a money manager adds to, or subtracts from, a fund's return. Applying the same concept to client relationships, and more specifically to retirement planning, "emotional alpha" is the non-performance value that advisors add to, or subtract from, their interactions with clients.

For various reasons, creating and measuring emotional alpha is fast becoming an important part of practice management. In the first place, the financial services industry has reached a level of parity in both product suite and customer service. In fact, I'd argue that a majority of the industry has become cliché and predictable, especially when it comes to the retirement planning process.

Essentially, anyone can walk into an RIA office, wirehouse broker, trust department, bank or even a local insurance agency and have access to a similar range of products including a professional-looking retirement plan and managed money products such as separate accounts, mutual funds and ETFs. Additionally, new clients could expect a thank-you card for signing up, monthly or quarterly statements, a prepackaged newsletter, and even a birthday or occasional holiday card.

Secondly, the deep emotional scarring that clients have endured over the last decade has caused many clients to rethink how they work with and interact with an advisor. The days of set it and forget it, or buy and hold, are falling by the wayside despite theoretical evidence of their benefit. Clients don't want to hear about theories and research anymore. They've lived a different story and experienced negative results despite the promises illustrated through back-testing and research, and they're demanding alternatives. If markets continue to provide mediocre-to-poor results, advisors have no choice but to concentrate and improve the way they interact and manage client relationships.

What's In It For Me?
Creating emotional alpha starts with identifying advisors' non-performance intentions. Outside of making clients money or protecting their wealth, what do you as an advisor want to add to the relationship? And just as important, what would you like to receive in return? Personally, my mission is to help people speak intelligently about their investment holdings, investment strategies and the impact that varying markets have on them. It's one reason why I write regularly for them and include sound bites for them to easily share. I take this concept a step further by preparing for client meetings as if they were media interviews. I select two to three themes I really want to focus on, and make sure the clients understand these themes and can confidently converse about them with family, friends and colleagues.

Thinking of client meetings like a media interview helps build emotional alpha because, as an industry, we compete against media headlines and interviews that tend to sensationalize the current, short-term situation and not necessarily what our clients are holding. Just as the media employs basic principles to attract listeners, viewers, readers and advertisers, advisors should operate like a media outlet and use the same methods to keep their clients engaged and loyal subscribers.

A client walked into my office recently and pulled my latest e-mail and newsletter from his pile of papers. I couldn't help but grin because he had circled several parts of the newsletter and filled nearly all the white space of my e-mail with his chicken scratch. He said, "I always read your newsletter and I want to ask you some questions about this, that and a few other things."

This is a simple example of positive emotional alpha. The client confirmed that he actually reads my newsletter and seeks my counsel based on what I share with him. I avoid sending prepackaged newsletters and always find a way to tie recent news and events to aspects of clients' portfolios. I've found that to be important when it comes to measuring emotional alpha because the number of client touches is not the measure of positive impact. Instead, it's the relevancy of touches and the degree to which they foster two-way communications rather than a monologue that expresses only the advisor's thoughts and opinions.

If you've been in a one-way relationship, I'm sure you recall how it made you feel. When it comes to communicating with clients, keep them engaged and active throughout the conversation by prompting them to seek your counsel, as well as provide you with referrals.

K.I.T.-Keep In Touch
Another important way to create emotional alpha is to get clients involved in their portfolio decision-making. This can be done effectively by establishing either portfolio or market contact points. If, for example, you meet with a client and the Dow is trading at 11,000, you can simply say, "Let's talk at 1,000 point intervals. If the market jumps up to 12,000, let's decide if we should take some gains, but if it falls back let's decide if we need to minimize losses." What's truly important is that, if nothing else, you've created a contact point ... a simple way to establish your next get-together and create another opportunity to educate your client.