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When Clients Get Nervous, Go Back to the Basics

October 20, 2017

This time we hear from Paul Franklin, founder of Franklin Capital Strategies with offices in Washington, D.C., and Cleveland. He discusses how revisiting assumptions about risk tolerance and goals can help reassure nervous clients.

I recently began working with a young man who came to me for help with general asset allocation. We reviewed his current portfolio and he ended up deciding to bring the accounts over to us so we could manage them for him.

During our first meetings I went through our firm’s normal process with him – getting a thorough evaluation of his short- and long-term goals, risk tolerance, and time horizon. We talked about different uses he might have for different pots of money and specified which funds were earmarked for retirement. We worked together pretty intensively those first few months, getting everything ready to go.

As the months passed, this client became anxious. He emailed regularly and would often call the office out of the blue. His contact with me was often spurred by something he’d seen on CNBC. He’d ask how we were adjusting his asset allocation in response to that day’s meeting of the Federal Reserve, or want to know why the rate of return on his portfolio lagged the S&P 500.

Over the years, I’ve learned that one of our most important jobs is serving as a kind of therapist to our clients by calming them down when they’re nervous and keeping them oriented toward their long-term goals. I’ve also learned it’s important to not reply immediately to a client’s frantic 8 p.m. email (unless, of course, there is an emergency). Nothing good comes from getting into a prolonged back-and-forth over email. It can be tempting to want to provide anxious clients with immediate, thorough responses to all their questions, but in my experience, long emails just beget more long emails.

Paul Franklin

More often than not, what the client is looking for is reassurance, not answers — and reassurance is best delivered through a conversation, either on the phone or in person.

With this particular client I always made sure to reply to him first thing the next day, generally sending an email that said: “Got it, let’s talk.” When we spoke, I’d remind him we’d worked together to create a strategy tailored to his specific needs. When he brought up the S&P 500’s returns, I reminded him he hadn’t wanted his portfolio to be 100% invested in U.S. equities. Together we reviewed the basic assumptions we’d used to come up with our strategy: risk tolerance, time horizon, goals, etc. If those assumptions were no longer appropriate, I told him, we could adjust his strategy to reflect any changes.

In many cases, reviewing those initial assumptions is enough to calm clients down. In this case we did make some adjustments, tweaking his allocation so it included a bit more in the U.S. market so he could see more correlation there. But in the end I don’t think it was these changes that helped him feel more comfortable and confident in our process. Getting back to basics and reminding him why we’d made the choices we did made the difference.

I think advisors often feel that winning new business is the most important part of the job when 90% of what we do happens after a client is onboard — when we work to make sure they are comfortable over the long haul. That work is going to be different for different clients, but for the anxious ones in particular — those who watch too much news or listen to bad advice from neighbors or family members — going back to the basics can be hugely helpful.

It’s also a way that we as advisors can distinguish ourselves from the growing number of automated services out there. When the financial news starts to get a client’s blood pumping, there is so much value in having a person reassure them that they’re making strategic decisions with long-term goals in mind. A chat bot is never going to be able to accomplish that.