Reduce Your Vulnerability to a 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

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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
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How to Turn a Down Market into Client Loyalty

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.

1. 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.
2. 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.
3. 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.
4. 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?
5. 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.

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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
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Four new imperatives for effective client communication

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:

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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
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Why Investors are ”Mad as Hell” … and What You Can Do About It

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.

http://​online​.wsj​.com/​a​r​t​i​c​l​e​/​S​B​1​0​0​0​1​4​2​4​0​5​3​1​1​1​9​0​4​0​7​0​6​0​4​5​7​6​5​1​8​5​8​4​2​9​0​6​1​4​6​0​2​.​h​t​m​l​?​m​o​d​=​d​j​i​n​t​i​n​v​e​s​t​o​r_t

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:

Their finances

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.

Their future

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.

Rebuild­ing confidence

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.

http://​online​.wsj​.com/​a​r​t​i​c​l​e​/​S​B​1​0​0​0​1​4​2​4​0​5​3​1​1​1​9​0​4​0​7​0​6​0​4​5​7​6​5​1​8​5​8​4​2​9​0​6​1​4​6​0​2​.​h​t​m​l​?​m​o​d​=​d​j​i​n​t​i​n​v​e​s​t​o​r_t

http://​online​.wsj​.com/​a​r​t​i​c​l​e​/​B​B​9​A​0​9​5​0​-​8​4​D​A​-​4​3​4​1​-​9​A​E​8​-​3​7​6​5​2​C​4​D​E​8​1​4​.​h​tml

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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
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