Psychology 103: Nobody Is Perfect
People like working with individuals like them. Pretending to know it all or to have a perfect record sets you and your client up for a very short-term relationship. Like many of you, our clients' portfolios were hit hard last year after the U.S. was downgraded and politicians couldn't negotiate a resolution to the debt ceiling. Our research indicated that in past debt ceiling instances, an eleventh hour resolution surfaced and major indices were nominally impacted. Obviously, what happened in the past didn't happen this time. Missing a call or market move has to be expected based on an infinite number of data points to consider. Making a wrong call doesn't mean you don't know what you're doing or that you "failed" your client; it's a fact of the business and those who are good at it have made a lot of mistakes getting to where they are today.
Admitting you've been wrong sets realistic expectations among clients and lends credibility to the work ethic and ability it takes to periodically pick a winner -- which gives them something to talk about.
There is no doubt that the world of investing in constantly changing. As more and more baby boomers retire and desire income-producing assets, advisors must learn to balance investing fundamentals with the psychology of investors. By applying common sense psychological principles to the way that you interact, select and manage a client's portfolio, advisors can empower clients and help them manage their emotions instead of letting the market dictate them.
Cliché sayings such as, "We're in it for the long haul; we're long-term investors," or "The markets always come back over time," provide clients with little comfort and reassurance even when the fundamentals are solid and the microenvironment is improving. Help them see the silver lining with small portfolio winners, use a simple analogy to help them grasp your investment approach and set realistic expectations going forward.
Robert Laura is the president of SYNEGOS Financial group, co-founder of RetirementProject.org, creator of the Laddered Dividend Portfolio, and author of Naked Retirement. He can be reached at [email protected].