Posts Tagged ‘Market Downturn’
Wednesday, April 4th, 2012
by Stephen Wershing, The Client Driven Practice
Is the next market downturn your biggest vulnerability? It shouldn’t be. Many advisors lose clients when the market declines. The most successful add clients. Is the next bear a threat to your practice? If it is, how will you eliminate it?
Jack Stack is recognized as an outstanding business strategist. I have great respect for his work, and, not to take anything away from his accomplishments or The Great Game of Business, his secret is not as simple as having a great vision. It may be that he does not even excel at the “vision thing.” He managed to steer his company through a very challenging period, and subsequently spin off 63 other successful companies, by focusing on its biggest vulnerability. As the firm gradually reduced the threat, he turned his attention to the next biggest. Systematically mitigating or eliminating the biggest threat to the business made him one of the most successful leaders in business.
Successful advisors provide clients valuable guidance and services beyond investment returns. If the advice you offer does not go much beyond portfolio performance, it needs to now. You cannot control the direction of the market, and it would be foolish to leave the future of your practice to the fickle direction of stocks. Besides, if your primary value is investment returns, how will you distinguish yourself from the thousands of advisors who do exactly the same thing?
When we ask clients “What is the most valuable thing your advisor brings to the relationship?” we practically never hear “earns a good return on investment.” Like good customer service and trust, it is assumed you will manage their portfolio competently. What they value, remember you for, and ultimately refer you for, is something more. Find out what that is, and build your strategic plan around it.
Refine your value proposition and build on what keeps your best clients with you. Learn new skills that enhance what differentiates you from other advisors and strengthens your real value to clients. And do it before another market downturn jeopardizes your relationships!
Copyright © Stephen Wershing, The Client Driven Practice
Tags: Business Strategist, Direction, Driven Practice, Good Customer Service, Great Game, Great Vision, Guidance, Investment Returns, Jack Stack, Market Downturn, Portfolio Performance, Relationship, Return On Investment, Stocks, Strategic Plan, Successful Companies, Value Proposition, Vision Thing, Vulnerability
Posted in My Practice | Comments Off
Wednesday, December 21st, 2011
During the last month stock market have dropped and gyrated; some days by a whopping 5%, and in the case of many clients, wiped out this years gains. While this is bad for portfolios, it doesn’t have to be bad for your client relationships.
Will the market bounce right back, or continue going down? Is this the beginning of the next bear? Who knows. In terms of the growth of your practice, it may not matter. You do not have to be slowed down by the direction of the market. The fact is the best and most successful advisors add clients in down markets.
I don’t mean to suggest that it will be pleasant. Is going through a down market easy? No. Can it be rewarding? Absolutely. Everyone looks like a genius in an up market. The professionals standout when things are rocky. How do you build and strengthen client relationships when the markets are bad? Here are some suggestions.
- Review your client portfolios and make sure you are prepared for a market downturn. Confirm that positions and allocations have not gotten out of whack because of market gains over the past couple years. Evaluating how those portfolios might respond if markets or interest rates changed suddenly or significantly, and make any adjustments you think appropriate.
- Be ready to describe to your clients how you have prepared for the possibility of a market change. If the markets begin moving against you, have a communications plan that includes mass e-mails or letters and the conversations you will have individually in client appointments.
- If the markets continue their slide, send out a communication to all clients. Let them know you are watching what’s going on, and are prepared to make any changes that are appropriate when the time comes. One of the more interesting things I have learned from working with client groups is that they have little understanding of all the work you do on their behalf when they are not in front of you. Let them know. You don’t necessarily have to see them more frequently when times are bad but they need to understand that you are always diligently looking out for their best interests.
- Bring your clients together. If you have put off or neglected an advisory board, or have been considering starting one, now is the time to get it on the schedule. Engage your clients to tell you what they worry about. It may not be what you think. Get there guidance on the best ways of keeping in touch with the markets turned bad again. Whatever their concerns, get them to tell you what kind of communication with most effectively addresses their worries. Would it be letters, individual reviews, or group meetings? Should you be discussing their portfolios, or showing them the impact of a downturn on their financial plans?
- Act on their advice. When you implement your communication strategy, refer to your advisory board. Let all clients know that there is a group of clients you are actively engaged with to help you understand what kind of response would most effectively address what’s on their minds.
Many of the advisors I worked with in 2001 and 2008 were drained and exhausted by those difficult markets. The ones who kept in touch with their clients most effectively were rewarded for all that additional work with larger practices. Engaging your clients when things are bad will make your existing client relationships stronger and attract new ones.
Tags: Allocations, Bad Relationships, Bounce, Client Appointments, Client Groups, Client Loyalty, Client Portfolios, Client Relationships, Communication, Communications Plan, Conversations, Direction, Genius, Interest Rates, Interesting Things, Little Understanding, Market Downturn, Market Stock, Standout, Stock Market, Whack
Posted in My Practice | Comments Off
Wednesday, November 16th, 2011
The investment landscape has altered fundamentally since last fall.
One of the important changes is a basic shift in what investors look for in terms of communication from their advisors.
In my October column in Investment Executive, I outlined four new imperatives for client communication that advisors ignore at their peril.
Since last fall, I have talked to more than 500 investors in round-table focus groups and one-on-one interviews about their response to the market downturn.
Some of the things that investors seek from their financial advisors have stayed constant . Investors still look for advisors who listen, demonstrate they care, put their clients’ needs first and provide advice tailored to each investor’s needs along with the ability to recommend solutions that choose from the widest range of offerings.
At the same time, a fundamental shift has occurred in some other things that investors look for from their financial advisors – and four new imperatives have emerged.
Imperative one: Demonstrate empathy
In many cases, the first priority for financial advisors is to establish a bond of empathy and to tap into client feelings – often, clients are unable to listen to their advisor until they first feel listened to.
If an advisor hasn’t had an indepth conversation about how a client feels, one of the better ways to start a meeting is to say something like: “Many investors have lost sleep because of the market events last fall. Tell me, how have you been affected by the market over the past while?”
Imperative two: Provide guidance and direction… with an outlook of balanced optimism
While almost no one is happy with what’s happened to their portfolios in the past, most investors aren’t blaming their advisors for this – they see everyone they know in the same boat.
What is causing dissatisfaction among many investors is what’s happening today. Many clients say that their advisor is overly passive and not providing direction on what they should be doing going forward. Today, investors are looking for guidance on how to move forward – and if they don’t get it from their existing advisor, they’ll look elsewhere. Even given the uncertainty of today’s environment, advisors need to sit down and talk to clients about the different scenarios for the period ahead and the implications for their portfolios.
Imperative three: Incorporate fresh perspectives
A common complaint among investors is that their portfolios are unchanged since the market meltdown began last fall – a comment I hear a lot is “If my portfolio made sense then, given everything that’s changed, I don’t see how it can be right now.”
In cases where investors are in mutual funds or managed money, of course, their portfolios have been actively managed – and it’s incumbent on the advisor to help clients understand how their investments have changed.
In other instances, it might make sense to introduce a new element into client portfolios, such as investment grade corporate bonds. Clearly, any recommendation has to be appropriate and you never want to make change for the sake of change – but failing to recommend appropriate changes runs the risk that clients will see their advisor as taking them for granted.
Imperative four: Ramp up communication
The final new imperative for advisors relates to the demand for communication.
The events of last fall have dramatically heightened demand for frequency of contact – whatever level of contact clients wanted a year ago, it’s almost certainly higher today.
And it’s not just demand for quantity that has increased – many investors are looking for more substantive commentary on prospects for the market and for their portfolio.
Many advisors can’t meet this demand simply by increasing the number of meetings and phone calls. New communication vehicles need to be be used to supplement the traditional personal contact – emailing articles, conference calls and group sandwich lunches in a boardroom to name just three.
The events of last fall have caused investment managers to re-examine their practices and adopt new approaches – in a similar vein, to be effective investment advisors need to fundamentally rethink their approach to client communication, bearing these four new imperatives in mind.
To read the full article, look at the October issue of Investment Executive.
And to watch a video summarizing these changes, click play on the following video:
Tags: Array, Client Communication, Dissatisfaction, Empathy, Feelings, Financial Advisors, First Priority, Focus Groups, Fundamental Shift, Guidance, Hasn, Imperatives, Indepth Conversation, Investment Executive, Investment Landscape, Investors, Market Downturn, Offerings, Optimism, Peril, Portfolios
Posted in Dan Richards, My Practice | Comments Off
Wednesday, August 24th, 2011
Last Friday, Jason Zweig of the Wall Street Journal Street Journal wrote about fear and anger as the two dominant attitudes of American investors today; fear about their future and anger at those they see as responsible for the latest crisis. His column depicts many investors as intensely disillusioned, summoning up the phrase “I’m mad as hell and I’m not going to take it any more” made famous in the 1976 Oscar-winning film, Network.
While these sentiments are more pronounced in the United States, Canadians have many of the same concerns. And these worries aren’t limited to just “do it yourself” or older investors or those with modest assets. They cut across a broad range of ages and asset levels.
Today’s investor psyche has fundamental implications that will require changes in how you interact with clients. Before getting into how to respond, let’s look at what’s driving today’s mindset.
Why investors are afraid
In his article, Zweig pointed to three things that cause fear among investors:
In a recent survey, 73% of Americans said they “worried about money” during the previous day, up from 56% in March of 2009, when there was serious talk of a global meltdown and another depression. Indicative of this anxiety was a recent New York Times article on dollar stores which pointed to a “new consumerism” among the affluent, as households with incomes over $70,000 today make up almost 25% of dollar store customers and are the fastest growing segment of their shoppers.
Nearly 6 in 10 Americans say that the latest market downturn will limit the opportunities to pursue their future objectives. Only 11% say they have “strong or very strong control of their financial lives”, down from 17% in March of 2009.
The way ahead for the United States
Over half of Americans are moderately, or very fearful about the future of the United States. These fears aren’t new. Even before the events of 2008, surveys showed the current generation of Americans to be the first on record unsure about whether their children would be better off than they are.
Continued uncertainty about house prices and unemployment has only made these fears worse, and the downgrade of US debt and extensive media coverage about the deficit and debt ceiling have also contributed to this anxiety.
What makes people angry?
The survey found that 59% of Americans are moderately or very angry about the challenges facing the United States; but their anger goes beyond that, to real frustration with the way the financial industry operates today.
In his column, Zweig writes: “People seem to feel like bystanders at their own financial lives — almost as if they were spectators at a race track equally incapable of stopping an impending car crash and of tearing their eyes away from it.”
In a video interview accompanying the article, Zweig said that many investors feel victimized by a system rigged against them, constructed by policy makers, regulators, banks and Wall Street firms for their own benefit. More than at any time since the 1930s, investors feel the rules are tilted against them. This has contributed to a “buyer’s strike” on stocks. While existing holdings aren’t being sold, new money is staying on the sidelines, even in the face of record low returns on bonds and cash.
When it comes to their financial advisors, investors tend to be sceptical rather than angry. Even when investors like and respect their advisor, many say advisors oversold their ability to manage risk. Even “conservative” portfolios were hit harder than was seen as possible, both in 2008 and in the past cycle. Another widespread complaint is that advisors have been too slow to act in the face of changing developments.
Whether these complaints are fair is irrelevant; they are real in the minds of many investors. Given that reality and the extent to which the confidence of many clients has been shaken, here are some guidelines for conversations to address some of today’s client anxiety.
1. Make face to face meetings your priority
Many advisors rarely meet with clients; depending on your business model, there may be annual reviews, sometimes not even that.
Clients may be okay with this in normal times … but recognize that these are not normal times. For the period ahead, your top priority should be offering to meet with any clients who are anxious or want to discuss their portfolio. Even if a meeting can’t take place for three or four weeks, the fact that it has been scheduled will reduce some of the stress that clients feel.
2. Start by listening
With many investors, feeling genuinely listened to is the first step on the path to rebuilding trust. In his best seller The Seven Habits of Highly Effective People, Stephen Covey put it well: ” Seek first to understand, then to be understood.”
Start meetings with something as simple as “Markets have made many investors anxious; tell me how you’re feeling.” Encourage clients to talk about their concerns with follow up questions. The best way to engage clients is by getting them to open up about how they really feel.
3. Acknowledge today’s real challenges,- but don’t overstate them either
Straight talk helps build trust. That means being upfront about the real concerns for the economy; don’t sugar-coat the challenges around debt, unemployment and housing prices throughout the developed world.
At the same time, you need to provide positive perspectives that help balance all the bad news. Given the scepticism about stocks as an asset class, big picture conversations about price earnings multiples compared to historical levels won’t always do that. “Focus on the long term” and “remember that stocks outperform over time” have worn thin with many clients. Instead, hone in on the earnings and financial health of companies that clients know and have confidence in; Apple, Procter and Gamble and Shoppers Drug Mart are all good examples of familiar names that reassure clients.
4. Re-examine the role of investments that generate cash
Many investors have money in cash that should be invested to achieve long term goals. Provided that they don’t need access to the funds for some time, an approach that can increase client confidence and get money off the sidelines is to focus on investments that pay steady income of 3% to 5%;blue chip consumer staple, utility and telecom stocks that pay healthy dividends and investment grade bonds are examples.
Share the research showing the historical market outperformance by companies that consistently raise dividends, versus those that hold them steady or don’t pay dividends at all. When deploying cash into the market, discuss doing this in stages over the next year; Not only does this reduce the risk of investing just before a big drop, but it sends your client the message that you’re not in a hurry to get your hands on their money.
5. Have candid conversations about the price of risk aversion
Times like these truly test clients’ tolerance for volatility. A weekend Globe and Mail story on why investors need an investment policy statement is an example. In a sample IPS, a 46 year old woman can tolerate a loss of 10% but a decline beyond a one year period would concern her. It’s hard to see how that leads to an investment mix with any chance of providing a reasonable long term return. It may be that this investor would prefer to work an extra five or ten years rather than take more risk, but at the very least her advisor needs to be crystal clear about the implications of the choice she’s making.
These kinds of markets create the need to talk about the losses that investors can withstand and still sleep at night on the one hand and the true cost of avoiding mid-term losses on the other. In some cases, this conversation will result in adjusting the risk in portfolios down, in others clients will conclude that they need to change their view on how much volatility they can live with. While studies generally question the value of guaranteed products, sometimes the guarantees on segregated funds or guaranteed minimum withdrawal benefit solutions can make the difference in clients’ comfort with more volatile investments.
6. Revisit portfolios more often
A common complaint is that advisors are too passive and portfolios too static. Many investors feel they’re just sitting there,“taking it.” That’s especially true with investors who own mutual funds and other managed solutions, and are often unaware of changes to their portfolios.
During markets like those of late, clients want to feel that their portfolios are changing to take advantage of opportunities. A common complaint from clients; “If my investments made sense a year ago, given all that’s gone on, how’s it possible that exactly the same investments make sense today?” In response, make a commitment to update clients quarterly on what’s happening to markets and any changes in portfolios as a result.
7. Identify options to help clients control their financial future
Jason Zweig’s article talked about a number of things stressing investors today, but feeling that they don’t have control of their financial future has to be at the top of the list.
A good financial advisor’s most important role is to work with clients to create a financial path to their long-term objectives, in the process helping them understand the options and tradeoffs available to achieve their goals. That process can give clients a feeling that they have choices and at least some measure of control of their financial future. If your conversations with clients achieve nothing else, then the time invested will be well spent.
Winston Churchill once said: “The pessimist sees the difficulty in every opportunity. The optimist sees the opportunity in every difficulty.” Right now, many clients are overwhelmed by all the bad news surrounding them. Great financial advisors are emotional anchors for investors, keeping the highs from being too high, and the lows from being too low. By putting these steps in motion, you will provide balance and help clients recapture a sense of realistic optimism about their future.
Here are Jason Zweig’s article and video interview from last Friday’s Wall Street Journal.
Tags: Affluent, American Investors, Asset Levels, Cause Fear, Consumerism, Dollar Store, Dollar Stores, Fastest Growing Segment, Fundamental Implications, Global Meltdown, Households With Incomes, Jason Zweig, Last Friday, Market Downturn, New York Times, Older Investors, Store Customers, Wall Street Journal, Wsj, York Times Article
Posted in My Practice | Comments Off