“What keeps you awake at night?” Advisors often ask this question to learn what problems need a solution in the prospect’s life. If the advisor can develop a plan to address the problem, they become part of the solutions and the prospect becomes a client. But what happens when the advisor can’t sleep at night? Why might this happen?
The multiple step financial planning process works great with linear thinkers. Sometimes clients go off script, off roading, away from the paved highway of the financial plan. What might clients do to cause advisors sleepless nights?
1. The client who neglects rebalancing asset allocation. Since stock prices change every day, the client’s asset allocation is never in perfect balance. Many advisors suggest periodic rebalancing, often at portfolio review meetings. When the stock market is going up, some clients are incredibly resistant to taking money out of equities, reallocating to bonds and cash.
Conversation: Compare the actual portfolio to the model. Remind them of previous times when the stock market “turned on a dime.”
2. The client who embraces either fear or greed. Some clients panic easily. They find someone talking about a current stock market crash and want to sell everything. TV news creates a sense of urgency. Others want to buy the latest and greatest idea mentioned on TV, unaware the biggest gains might be in the past. When the market does decline sharply, they are resistant to buying, assuming prices will go lower. Emotion rules.
Conversation: The client is getting emotional. This is a compelling argument for professional money management.
3. The client convinced the good times will last forever. You have heard the expression the “New Normal” before. The client assumes the stock market rally or bull market will last forever. They start spending as if their portfolio will go up forever. They take on debt, then one day the market declines sharply, erasing those gains. The debt remains.
Conversation: The economy moves in cycles. Real estate prices move in cycles. Their industry moves in cycles. Their bonus changes year to year. You need to realize everything is cyclical.
4. The impatient client who expects instant results. Clients listen to the financial new. This includes “stocks making the biggest moves.” They assume advisors know about this stuff and they can make lots of money day trading. They have short attention spans.
Conversation: Talk about the fallacy of timing the market. Pull out those charts showing stock market returns over time. Talk about how slow and steady wins the race.
5. The client who thinks the advisor can predict the future. The world is full of “Monday morning quarterbacks.” There are plenty of people who in hindsight, think the signs were in place the market was going to rise or fall. Why didn’t their advisor pick up on it? Did they only tell their best clients?
Conversation: Market timing does not work on a consistent basis. No one calls the top or bottom perfectly. Talk about the returns over a specific period if you missed the ten best or ten worst days.
6. The client who thinks a historical 10% return means the stock market travels in a straight line. Clients have heard the stock market has historically returned about 10% over long periods of time. Doesn’t this mean they can assume a 10% drawdown rate on their retirement assets? If not, why not?
Conversation: If the stock market moved in a straight line, returning 10% a year, wouldn’t everyone invest everything they had and collect 10%? Wouldn’t the government issue bonds at 5%, put the proceeds into the stock market and make 5% more? The market might have returned 10% over decades, but it hits plenty og highs and lows along the way.
7. The client who does not follow through on adding money on the agreed schedule. The advisor does retirement planning with the client. They have the appropriate asset allocation. Projections show how their money will hopefully grow. This is dependent on the client “feeding the kitty” a certain amount every month or year. The market does well. Since they are ahead of schedule, they skip payments.
Conversation: The market can give and the market can take away. Being ahead of schedule in results consistently might mean your retirement can be brought forward. This won’t happen if you do not do your part.
8. The client with unrealistic retirement expectations. One client thinks they will spend nothing in retirement. Others think a 10% withdrawal rate is achievable. Don’t forget the client who thinks prices will never go up. Some people believe what they want to believe.
Conversation: Your retirement spending might be identical to todays spending. Savings might only include commuting costs, dry cleaning suits and having lunch away from home. You might spend more in retirement because you want to travel. Remember the early days of the pandemic lockdown when everyone was told to stay home? Is that how you see retirement?
9. The client who is holding something back. What are you not telling me? Advisors can get a funny feeling about a client. Are they thinking about divorce? Is that why they are moving money around? They don’t sound as enthusiastic about long-term planning. Are they about to be laid off? Are they about to be audited? Suddenly they are not bragging about their children. Is a big life event about to happen?
Conversation: Stress confidentiality. You would tell a doctor when you were not feeling well. Why? To give them a chance to get in front of the problem or take preemptive measures. The more advance notice you have, the more time the advisor has to prepare.
10. The client who goes dark. You and the client were in touch on a schedule. It might have been set in stone, but you talked about once a month. Suddenly you cannot reach them. E-mails go unanswered. You get voicemail. Have they lost interest in investing? Is the problem much more serious?
Conversation: This can happen, especially with older clients. Is there an emergency contact person the firm has on file? Can you drive to their house and ring the doorbell? Have you tried different communication channels. Within the rules, are there relatives you can call? Be sure you try everything.
Caring for clients is one of the primary roles of a financial advisor. Some clients can make this difficult. Other times the lack of information can signal a problem is developing.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor” is available on Amazon.