10 a.m. meeting with client: "If Obama gets another term, he will ruin the economy."
1 p.m. phone call with client: "If Romney wins, we'll plunge into recession before inauguration day."
I sure hope neither is correct because, and you heard it here first, one of these gentlemen will win November 6.
Such is typical for many financial planners these days. Earlier in my career, I probably would have begun a rebuttal or worse, a lecture, about why such an event was not going to happen. Today, I am more likely to welcome, than dread, a discussion with clients about the economy and even politics.
All of your clients have an opinion about the elections. For some, their views are so strong that they will feel compelled to change their financial plans in ways you would not endorse. If you can improve your ability to have an effective conversation about these topics, your clients are less likely to make financial moves they will regret.
With our clients, we will talk about the issues of the day but work to keep partisanship out of our communications for a few reasons.
First and foremost, our clients' opinions run the length of the political spectrum, but their political leanings are just one aspect of who they are. They are intelligent, well-educated, hard-working people and we respect them enormously. Therefore we respect their right to their opinion and assume they did not come to their viewpoint lightly.
Second, is our slogan, "A sanctuary from the noise." With as much information thrown at all of us these days, there is great value in making sense of this information. In a world where personal financial issues become increasingly complex, we help discern the true from the false, the practical from the useless, the probable from the merely possible, and the applicable from the merely interesting.
Like a large group of seals barking at a passing boat, the campaigns, commentators, pundits and analysts seem to have taken to making as much noise as possible to stand out. This is done deliberately. Campaigns want to fire up their supporters and media outlets want ad revenue that is dependent on ratings and circulation numbers. So when someone says something obnoxious, you better believe it is going to get some play.
Our view is if you want your clients to be levelheaded and rational, you should be levelheaded and rational yourself. We are in a period of high-quantity but low-quality information. Our clients need the opposite and we are committed to providing that to them.
When discussing politics with clients, I keep a few points in mind:
1. I cannot prove a scenario will not come to pass.
Clients do not conjure their concerns out of thin air. In an effort to be better informed, they gather information and they place more credibility in some sources than others. Usually, the sources to whom clients grant the most credibility are the ones who think like them. Behavioral economists call this "confirmation bias."
It helps when a client recognizes there is another side, and the more they discover this themselves, the better. Your first step should be to assure the client that it makes sense to have some concerns and he may be right about what the situation may lead to.
Respectfully asking questions that highlight contradictory information can help. For instance, for a client whose looming disaster du jour is supposed to be the Fiscal Cliff, you might ask, "If it is so clear that Congress will drive the economy over the Fiscal Cliff, what do you think has caused stocks to rise so much lately?"
Chances are excellent the response will be interesting. Often it is clear a client is simply regurgitating someone else's theories because those theories support their otherwise well-considered opinion about who they will vote for.
Once the gloomy scenario is laid out ask, "Then what?" That may help clients to see that there is always more to come. Better times always follow bad, eventually, and usually faster than people think at the time.
2. It is usually not as bad as it seems.
There has been a dark cloud of uncertainty hanging over America this year. Prospective clients almost universally express great doubts about their ability to reach their goals in this economy and market. Many clients have told us that with interest rates so low, they don't see how they will make any money.
Franklin Templeton recently conducted a survey of 1,000 investors and asked whether they thought the S&P was up or down during each of the past three years, 66 percent thought it was down in 2009, 48 percent thought it was down in 2010, and 53 percent thought it was down last year. In fact, the S&P gained 26.5 percent in 2009, 15.1 percent in 2010, and 2.1 percent last year. So many investors' believing incorrect information may explain why $170 billion has been pulled out of stock funds over those three years on top of the $228 billion that bailed in 2008 and a whopping $5.8 trillion sits in money market funds earning next to nothing. Once again, those that succumb to short-term fears impede their progress toward long-term goals.
3. Presidents just aren't that powerful.
Every president has an enormous incentive to have a growing economy and good markets, yet we still have recessions and bear markets frequently. The president can exert influence, but the economy and markets are simply too complex for a U.S. president to drive their behavior.
4. Markets drop frequently and the reason isn't always clear, even in retrospect.
Yes, the economy and/or financial markets could perform poorly after the election, but is that because of the president? Maybe, maybe not.
The S&P 500 dropped 10 percent or more at some point in 19 of the 33 calendar years since 1980. Thirty-two of those 33 years experienced a drop of at least 5 percent. Share these numbers and ask your client if they recall the cause of the drops. Chances are good they can't recall many and none will cite an election outcome. Most "crises" turn out not as traumatic as they are made out to be. Peter Lynch famously quipped, "Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves."
5. Clients want to take action.
So do you, but your role is to make sure the actions are prudent.
People crave control. You can provide a sense of empowerment by revisiting the planning process. They can control how much they save and spend, how long they plan to work, the amount of their intended bequests, whether they will be speculators or investors, and they choose the goals and priorities for their family.
The "What then?" conversation mentioned earlier can be extended to a discussion of what we will do should the market experience a big drop. Knowing what they will do ahead of time can make the event less traumatic and increases the odds they will follow through and actually do what needs to be done.
Most important, they can control where they get their information and what they will do with it. The election is a serious matter, but not all the coverage of it is conducive to serious analysis, insight or contemplation. The non-profit Pew Research estimates that only 17 percent of political coverage actually addresses meaningful issues of policy. Teach them that most stories with headlines that include the word "gaffe," "blasts," "deals a blow to" or "should denounce," or ends with a question mark can be ignored.
6. Answer truthfully.
When asked whom I will vote for, I tell them but also explain that I do not agree with all of the candidates positions. This is an absolute truth and I have yet to have a client think less of me for it even if they are voting for the opposition. I make sure they know I think no less of them either for supporting the other side.
Fear impedes sound long-term investing behavior. Deep down, most clients know it is unwise to bet their life goals on political opinions. Regardless of their choice of party, they have won and lost in the past yet managed to move forward even when things did turn out poorly. We'll all probably do fine this time too.
Emotions seem to be running higher now. History tells us your clients need perspective and long-term thinking more than ever. Good luck. Campaign 2014 (and 2016 and 2018 and 2020 etc.) will be gearing up soon.
Dan Moisand, CFP, has been featured as one of the America's top independent financial advisors by Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines. He practices in Melbourne, Fla. You can reach him at [email protected]