Monday, August 22, 2011

Holster that pistol - and load the Howitzer

The harder the conflict, the more glorious the triumph (quote by Thomas Paine)

After the roller coaster rides of the last couple of weeks in the markets, many of us in the financial advisory business walk in to the office with knots beginning to form in our stomachs - and out at the end of the day looking for the closest martini bar. Our routine consulting methods seem ill equipped to address (not to mention resolve) the angst we encounter in the faces and voices of our clients.

For our advisor readers, the MarketPsych Insights team assembled the following list of steps we think are a handy reminder of time tested methods that are usually helpful.

1. Start with EMPATHY by exercising true listening skills and gently probing for emotional (and perhaps thoughtful) reactions to market gyrations, we serve a valuable role as sounding boards to relieve client tension. The most important aspect of this step is to shut up and let the client talk. Think of yourself as a steam valve. Every time you ask a question, or state an opinion, you are preventing high pressure steam from being released. Let the client unload; you may get new and valuable insights into their fears.

2. Be prepared to help them EVALUATE PERSONAL IMPACT of any changes in their wealth levels. Not only is this helpful in moving the discussion into more deliberative (i.e., less emotional) territory, but it also helps to extend the investment time horizon beyond short term whacks into longer term plans. In all of my recent client meetings, we review their financial security analyses to clarify what (if any) implications result from short term losses in value. People are usually better off than they feel.

3. Remind them that huge market volatility always brings OPPORTUNITIES. The key idea is to provide an inventory of solutions (investment or otherwise) that will add value over their investment horizon; if they are prudent enough to make decisive action now. Making decisions in tough times also provides clients with a sense that they have at least some control over their destiny, which is always a good thing.

4. Discuss process and methods to institute DOWNSIDE PROTECTION. You might institute something a simple as an agreed set of automatic triggers for communication or portfolio actions. These may include only communications, or perhaps move to more complex venues such as put options, or other portfolio protection measures. You may also explore identifying shifts in asset mix to more undervalued yield oriented strategies as well as the consequences of doing so for longer term planning. Again these measures provide the client with a broader set of tools to manage their emotional fears and feel a greater degree of control.

It is in times like these that we either strengthen our relationships with clients, or find them eroding. Spending more time in dialogue with clients in tough times is not only good for them, but it is good for you (and your business).

Mark, the Advisor


Anonymous said...

Good ideas Mark. I agree that this may be a good opportunity. It may be time to back up the truck.

Anonymous said...

Good ideas Mark. I think it may be time to back up the truck.