At a recent meeting I attended for financial advisors, I was frankly surprised at the number of attendees who indicated that they were receiving many phone calls from concerned clients and, in some cases losing them. I wondered how they communicate with their clients in good and bad markets, and what they tell them to expect. Of course, if you sell your ability to offer superior returns in all markets, it should come as no surprise when clients abandon you because you can't. Or if you are quick to take credit when the markets (and your portfolio management) do well, you can expect that clients will blame you when the markets don't. You may be creating your own problems by promising what you may not be able to deliver. As with so many problems in life, poor communication, or lack of it, is probably the culprit.

I have previously cited on these pages the 2003 Dalbar study that compared the returns of the average equity investor from 1984 to 2002. During that period, the S&P returned 12.22% while the average equity mutual fund investor earned 2.57%! So why are so many advisors telling their potential clients that their stock or mutual fund selection process will yield results that can "beat the market?" Do they fear that these people will simply invest in an index fund and not use their services? The Dalbar results tell us that most investors are not disciplined enough to follow that strategy. Fear and/or greed will take over and they will either bail out at the worst times or simply chase returns. The result: They underperform the market by almost 10%. So, even if your returns are, say, 2% less than the market, you would have delivered incredible value to your clients. This is what you need to tell them when they are prospects. Tell them that it is your job to deliver returns that would most likely exceed what they would get if left to their own devices. We have no way of knowing what that may be, but Dalbar has certainly provided us with a clue.

But let's discuss how you want to communicate with your clients when we are in our current market and the media is scaring people about the "deep recession" that we are in. Some are even using the word "depression." The rhetoric we are hearing from the presidential candidates isn't helping. We need to acknowledge what is happening, but in a way that does not signal that we are worried or panicking. I assure you, if you are selling at this time, this worry is precisely what you are communicating, and you are not doing your clients a service. They don't need you to do that, since it is what they would probably have done without your help.

I would like to share with you excerpts from a recent communication we sent to all of our clients (thanks to Jeff Weiand, who wrote it). The message we wanted to send was that we are certainly aware of what is happening, but that we will remain disciplined and not have the media affect the decisions we make for our clients.

Just the other day there was a segment on MSNBC about Britney Spears. They were showing video clips of her sitting in her car mere moments after she had been involved in a fender bender. As one would suspect, the strobe-like flash bulbs from the frenzied paparazzi's cameras were lighting her car up like a dance floor. While the scene played out, one of the show's commentators offered a passionate plea that questioned why they can't just leave the poor girl alone. Ironically, the answer lies in the chair in which that particular gentleman was sitting. The paparazzi are taking pictures because the MSNBCs of the world are buying them. In other words, whether it's right, wrong or indifferent, it's all about the ratings. And nothing is better than a juicy soap opera to keep people tuning in day after day.

A few weeks back, our Chairman, Roy Diliberto, was invited to appear on the Fox Business Network. The day before the stock market had rallied (the Dow was up nearly 300 points). They wanted him to discuss whether he thought that signaled an end of the decline and what he thought the market would do for the balance of the year. Roy told the host that no one had any way of knowing what the markets were going to do in the short run, regardless of what they might say to get on television. He would be happy, however, to discuss a subject he believed to be much more important to their viewers; namely, what should they do. He would be willing to discuss the importance of diversification, especially in times like this, but she was not interested. Couldn't he just give his best estimate of what he thought was going to happen? Roy respectfully declined the interview. Being honest was more important than appearing on national television.

What is the point of all of this? If you buried your head in the sand on January 1, 2008 and came back up on March 31, 2008 and saw how your portfolio had performed during that period, you would have thought that you had simply experienced some of the normal fluctuations that often take place when investing for the long term. And despite the fact that your portfolio may be down some during this more volatile time, the reality is that our portfolios have held up extremely well. Through this period, we have seen the benefits of not only proper diversification, but of our opportunistic rebalancing strategy as well. These approaches have shined brightly during this time.

But obviously, most of us did not bury our head in the sand. As such, you may have seen and heard all of the doom and gloom voiced by prognosticators who continuously stir the pot in exchange for their five minutes of fame and their chance to climb to the top of the ratings. As we know, the media loves any topic that they can turn into a soap opera. Whether it is about someone's personal affairs or about the economic environment, the media seems to operate under one "principle": that most people will tune in again tomorrow if the gossip is juicy enough or if the information is dramatic or shocking enough. It is this motivation that leads to the stories that you see on MSNBC and other channels like them-stories not only about Britney Spears' day-to-day troubles, but about the failing economy and the disasters looming in the stock market on a daily basis. The goal is to alarm and concern viewers enough that they feel that they need to watch in order to stay in the know.

Our point to you is that most people are feasting on bad information, which in turn is causing them unnecessary emotional indigestion. Therefore, with this in mind, we would like to make a suggestion. Live your life and feel free to change the channel if at anytime you find yourself feeling an elevated level of emotional angst. Understand that many media outlets increase their ratings by exaggerating reality and forecasting snowstorms. In other words, allow us to sort through the financial noise and filter out what truly matters for the success of both your future goals and dreams and your every day life.

It is very important that we clearly communicate to our clients before, during and after market downturns that:

First « 1 2 » Next