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Educated Investors Make Better, Happier Clients

By Thomas Coyle October 6, 2016

If investor education isn’t a top priority for financial advisors, experts in the field say it should be.

Advisors who share this point of view say clients who know how markets work and understand how tenets of behavioral finance color their views are easier to guide in troubled times, happier to pay for services in all conditions and generally easier to work with.

“Our best clients really are educated clients,” says Bo Hanson, an advisor with Franklin, Tenn.-based Preston & Cleveland Wealth Management, which manages around $180 million.

Hanson and his colleagues start their investor education efforts by determining whether prospects have realistic year-over-year return expectations.

If they’re looking for portfolio gains of 20% and above, Hanson says they may have to be taught to lower expectations to avoid the kind of disappointment that can mar advisor-client relations. If they’re expecting returns as modest as 2% or 3% a year, they may have to be encouraged to contemplate the advantages of embracing more risk.

Mainly, clients have to be taught that fixating on short-terms gains is counterproductive.

“Results will always depend because we’re at the mercy of the markets,” says Hanson. “It’s not something you can guarantee.”

Clients who understand that, and who understand investing is a painstaking and gradual process, “tend to be less emotional” about the market’s ups and downs, Hanson says. Some even see market downturns as welcome buying opportunities rather than absolute setbacks, he adds.

In turn, clients who are less emotional are likelier to “realize our value,” says Hanson.

In making its clients savvier, Preston & Cleveland bucks what Hanson considers an industry-wide tendency to make financial concepts inaccessible.

“Advisors have a habit of making things too complicated,” says Hanson. “We try to simplify things without dumbing them down.”

Like investing itself, however, Hanson sees such education as a long-term undertaking that needs to gestate before it even starts paying off.

“Sometimes the big ‘ah-ha’ moment comes when the client comes across a concept or an idea when they’re reading something or in a conversation and it occurs to them: ‘My guy has been saying that for years,’” says Hanson. “It’s a confirmation of what we’re doing, but it can take time.”

Don Blandin, head of the Investor Protection Trust in Washington, D.C., says financial education is a two-way road. Just as educated clients make life easier for advisors, clients who know roughly how markets work, what financial plans should touch on and how their own biases can work against their financial well-being, are likelier to pick advisors who are straight shooters, he says.

First Ascent investor-education video called "The Value of a Good Advisor."

The Investor Protection Trust and the Investor Protection Institute, a related entity, are sources for advisors looking for help educating clients. The Investor Protection Trust offers a teaching guide entitled “The Basics of Saving and Investing: Investor Education 2020.” Meanwhile both organizations helped produce a 2016 consumer-oriented network television program called “When I’m 65,” viewable here.

Money managers — often keen to add value in their FA-directed sales efforts — can also be helpful to advisors who want educated clients.

One new player, First Ascent Asset Management, has made investor education a core mission.

Like Hanson, the Denver-based firm thinks the industry’s consumer outreach is blunted by insider-speak.

“We’ve created a lot of jargon,” says First Ascent’s CEO Scott MacKillop of the industry. “I just don’t know how much of that is evolution” — the result, in other words, of insiders taking shortcuts to express themselves efficiently — “and how much is intentional, to keep clients humble and needy.”

As an antidote to this obfuscation, intentional or not, First Ascent offers online text and video courses that tackle investing fundamentals, provide context for making investment decisions and share insights on behavioral finance. The videos, with titles like “Understanding Risk,” “The Importance of Saving,” and “The Value of a Good Advisor,” are meant to convey concise, plain-English lessons in bite-size chunks.

“People are used to gaining information in small nuggets,” says MacKillop, who appears in the videos. “So we try to reduce things to the barest essential.”

But the effort can’t be too bare bones, says MacKillop. Messages like “stay the course” aren’t much good unless the recipient understands why — and, even more crucially, without implicit trust in the messenger.

“You need credibility and good reason” to get through to clients on a visceral topic like their money, says MacKillop. “You have to establish a foundation of trust.”

This consumer outreach — freely available to consumers and investment professionals alike — comes naturally to MacKillop. Besides running Frontier Asset Management, designing US Fiduciary’s investment platform and helping to lead Portfolio Management Consultants, now part of Envestnet, MacKillop, an attorney by training, once worked in infomercials.

Specifically, in the early 1990s he worked at a startup called Health Innovations, whose flagship product was LifeSign, a handheld electronic device designed to help people quit smoking. After pivoting away from a plan to sell the gadget through corporate wellness programs, the company opted to go directly to consumers through TV ads featuring then-known names like Florence Henderson and the late E.G. Marshall — and soon saw annual sales approach $20 million.

“It was a great experience for me,” MacKillop tells FA-IQ. “It taught me a huge amount about the value of communicating simply, connecting emotionally and the importance of crafting a coherent story, rather than simply dumping facts and figures on your audience.”