Drowning in information but starved for wisdom
Many advisors gravitate to this profession because they are fascinated by financial markets, they like solving problems and they are passionate about helping people achieve their goals. But there’s something that aspiring advisors aren’t aware of before they start down this career path: Nobody hands you a script for navigating challenging client conversations. And yet, these discussions are crucial. They can be the difference between client outcomes being reached or not, relationships being retained or lost, and practices grown or stalled.
The importance became glaringly apparent in the first half of 2020, when advisors were faced with increasingly difficult and uncomfortable conversations. Unexpected portfolio performance. Advisory fees. The rationale for not making drastic changes to a financial plan even when it seemed that everything had turned upside down. If these challenging conversations haven’t come up yet, it’s not a matter of if, but when.
One of my early mentors taught me that financial advisors who are at the top of their profession and stay there over time attach less of their value to the products they choose, but rather to the financial outcomes they produce by being a coach and a psychologist to their clients. He pointed out this was especially true—and valuable—during periods of market volatility when investor emotions run high and often (negatively) influence important decisions.
And that’s the type of market environment we are likely to find ourselves in over the next few months. Russell Investments' strategist team expects market volatility and uncertainty to persist in the near- to medium-term.
Being equipped with a framework and time-tested tactics for tough conversations can make all the difference.
We’ve got some ideas to help you navigate these difficult conversations. Read on.
Be your clients’ coach, guide and guru
Over the years, I’ve had the privilege of working with some of the best mentors and financial advisors in the business. They have masterfully figured out how to balance the science of financial markets and wealth planning, and the art of using language that inspires clients to make what you feel is the right decision—not necessarily the easy or emotionally comfortable decision. This type of mastery doesn’t just happen. It requires intent and effort.
You may be reading this and thinking, it’s not that hard! If a client comes to me and wants to make a decision that I know is detrimental to their plan, I will just explain why a market or portfolio is performing the way it is, share some data on why performance chasing doesn't work, and my client will understand my reasoning and stick to their investment plan.
If only it was that simple.
Real life is more difficult. Let’s face it, nobody likes engaging in a tough conversation about their personal finances. Money hits every emotional trigger known to humankind. This explains the existence of an entire field dedicated to behavioral economics (the intersection between finance, economics and psychology).
Topics like performance, fees, making a change or justifying diversification are inherently emotionally sensitive subjects. The good news is that when emotions are at play—as they likely are today—many clients simply want to have calm, empathetic and inspiring conversations with their financial advisor. They want to feel connected to the solutions being provided.
Of course, your deep understanding of each individual client is crucial in these moments. A disciplined communication approach can also help you navigate these situations confidently and effectively.
Authentically ask, listen, empathize and coach.
The A.L.E.C. framework calls upon multiple advisor skills: Asking open-ended questions, listening with genuine interest, genuinely empathizing and effectively coaching. Let’s dig deeper into each component of this framework.
Ask – Open-ended questions can help you uncover the true root of your client’s pain point. We’ve all experienced a situation where clients misdirect their grievance for something else. Solving for the misdirected grievance isn’t going to fix the root cause. That’s like trying to treat a broken bone with a topical numbing cream. It might feel a bit satisfying for a short while … only to surge back again with a vengeance when the balm wears off. In your practice, if a client is questioning underperformance, perhaps you ask them open-ended questions, rather than jumping into a prepared arsenal of charts and tables. “I hear your concern. Which time period are you looking at specifically?” “I hear your concern. What expectations did you have for the return of this portfolio?” “I hear your concern. What is your definition of success?” This allows you to better understand the challenge and gives you more precise direction for level setting with the client in the rest of the conversation.
Listen– One of the greatest tools you have in your kit is to be an active listener. In addition to listening to the client’s words, watch their nonverbal cues as they speak to get additional clues about how they are feeling. When does their voice go soft, when do their eyebrows, arms and hands emphasize a point, when do they look away, when do they pause, when does their posture shift? These clues will help you empathize and coach more effectively. Resist the urge to interrupt.
Empathize – Clients want reassurance that you understand their priorities and fears, and that you empathize with their situation and acknowledge where they are coming from. For example, consider saying something like, “Thank you so much for sharing that perspective with me. I can see and hear this is a concern for you. Before making any investment decisions, let’s go back to principles first, just to be sure we’re not getting caught up in our emotions. After all, we can’t control or predict performance, but we can prepare and plan for any market event through asset allocation, which is one variable in our control.” Showing empathy allows that challenge to feel like it exists, that it’s accepted and acknowledged. Then you can coach to move past it.
Coach - Coaching clients through challenging conversations requires you to lean into your experience and insights to redirect client emotions. In the example of a client questioning performance, remind them of the importance of taking a longer-term approach to investing. Remind them that part of the reason they hired you is to be their long-term financial planner and coach, not a short-term market timer or prognosticator. It could sound like this: “As a wealth manager, I aim to provide experience, insights and wisdom, not just facts and information. Portfolios will underperform some of the time, but we should have explainable returns all the time. Chasing returns is like picking pennies up in front of a bulldozer: it’s going to be very hard to create wealth and you’ll take a lot of risk doing it.”
The bottom line
In my 20 years of experience working with and coaching advisors, I have observed that many of the most successful advisors are like gurus: They are ready for the challenge when it arises and deftly turn it into a learning and success opportunity.
Helping anxious clients navigate the emotions triggered by the recent market volatility is likely going to call on your guru powers. Consider the A.L.E.C. framework as a guide: Asking open-ended questions, listening, empathizing and coaching your clients can help keep them on a path to success and may establish business growth opportunities for you and your team.
And remember why you got into this profession in the first place: It likely wasn’t about chasing performance or being the best portfolio picker, but about working with people to help them achieve their financial goals. At a time when clients are drowning in information but starved for wisdom, this is your opportunity to impart that wisdom and solve for more positive client outcomes.