Some clients will be out of the door in a hurry if their investment expectations aren’t met. If you have ever experienced even a small stampede for the door, you should ask yourself, “Have you led the client to believe that your primary role was to select products to meet their investment objectives?”
If the answer is yes, you may have set yourself up for failure.
A more prudent approach would be to position yourself as a problem solver. Make it your primary role to be someone who gives advice on how to best reach their goals — regardless of what is happening in the market.
Investment performance is obviously part of the financial planning equation, but it’s the part that we least control. That isn’t to say that this mitigates the need for us to use well-defined investment principles and processes, but lack of control of the markets is a constant.
Knowing that, why is it that many of us allow ourselves to be backed into a corner to meet our clients’ often irrational investment expectations? You know the clients I mean — the ones who want continually good performance with no negative years.
Could it be because for many of us trailers and commissions form a big part of our compensation? Thus we tend to focus on keeping clients happy primarily by getting good investment performance. In fact, in our anxiety to always “perform,” some of us even fall victim to chasing investment performance ourselves — even when we know that it’s a mugs game.
If this sounds like you, when performance tanks you have to resort to reciting these traditional mantras: “We have been through this before, the market will come back, it always has.” “Joe, if you compare how you have done to the overall market decline, you are really doing well.”
But Joe doesn’t buy your explanations. His confidence in you is badly shaken. Although his expectations may be unrealistic, they are his reality. And somehow you allowed yourself to be measured based primarily on investment performance.
Fortunately, more advisors are recognizing that there is a way to keep clients happy with the services they provide, despite erratic investment performance. It’s about changing the benchmark by which you are measured. The benchmark should be tied to helping clients get what they want in life. That means that no matter what happens, the client can count on you, even if it’s just making the best of a bad situation.
To know what clients want, you need to first know what they really value in life. You need to know about their life objectives and their tolerance for various types of investment risk. Then you build a financial plan to give them the highest probability of reaching those objectives while remaining true to their values. I call this enhancing their wealth.
Here’s one definition of wealth from Webster’s Dictionary: “the things that are most important to you.” So when I find out what wealth means for a client, I want to help them create an abundance of whatever that is. Will it be a specific amount of money? No, in fact, I have never had a client who ranked money as number one. What’s most important to people are things like their families, friends, health, career, or even spirituality.
When a client engages me as their primary financial advisor, my mandate is clear: Design a plan to take the client from where they are today to where they would like to be. The plan needs to give them the highest probability of reaching their objectives. The plan must also give them more time to focus on what matters most to them.
Let’s look at one of my clients whom I’ll call Bill. Bill’s main goal is to retire from working by 55 so that he and his wife, Joan, are able to travel extensively and spend lots of time with their grandchildren.
But before getting to retirement, it’s important that they control the amount of time that they work so they have can stay in shape and be actively involved in their community. They also want to enjoy their cottage, which they hope to have paid off before they retire so it can remain in their family for their kids and grandkids.
We estimated that Bill and Joan will need $6,000 per month (net after tax stated in today’s dollars) indexed to 3% inflation. To be safe, we planned to have that income to Bill’s age 100 — with a $250,000 cushion (in today’s dollars).
Investment performance is important to the plan, but it’s only one of the means for helping them achieve their goals, and they know that. They know that we cannot control investment performance, but we will always follow the principles and processes outlined in their investment policy statement.