Managing Client Emotions

Managing client emotions begins before a client’s investment plan is even executed. It starts with setting the right expectations. Advisors should invest in educating and coaching their clients from day one of the relationship. Starting a client’s education in the midst of a market meltdown is too late. An educated client is the best defense against future panic.

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    Managing Client Emotions

    Managing Client Emotions

    Human emotions may be the chief obstacle to achieving long-term investment success. Whether it’s a credit crisis, a pandemic or a war, frightening headlines and deep drops in stock prices can provoke profound fears that lead investors to exit the stock market at precisely the worst time. Perhaps a financial advisor’s greatest value lies in managing client emotions—to protect clients from their own worst behaviors and help them tune out the noise in order to stay focused on their goals.

    Helping Clients Through Difficult Markets

    Managing client emotions begins before a client’s investment plan is even executed. It starts with setting the right expectations.

    One critical expectation is the client’s comfort level with principal losses, as it will become an important reference point for times when markets turn south.

    Equally important is education and coaching. Advisors should invest in educating and coaching their clients from day one of the relationship. Starting a client’s education in the midst of a market meltdown is too late. An educated client is the best defense against future panic.

    But sharp declines and bear markets are inevitable, so what can advisors do when such downturns arrive?

    1. Acknowledge their feelings and fears. Don’t dismiss them. Don’t attempt to be rational when confronting emotion. Those historical charts can wait.
    2. Defuse the fear. Ask them about the nature of their fears. Do they think current circumstances will continue indefinitely? Or are they worried that it will impact their retirement spending or retirement accumulation goal? Once advisors understand what clients really fear, they are in a better position to diffuse it.
    3. Ramp up communications. Clients want to know their advisor cares as much as they do; they don’t want to feel they are sailing these choppy waters alone.
    4. Focus on what is in the client’s control. The root of most fear is the feeling of a loss of control over a given situation. What the market does is out of anyone’s control, but advisors can provide clients with levers of control that may reduce their fear level. For instance:
      • Reviewing spending to see where expenses can be pared
      • Writing options to create portfolio income to offset declines
      • Buying puts to protect against additional declines
      • Rotating holdings into more dividend-paying stocks
      • Buying convertible securities to mitigate the downside, while still maintaining some exposure to stocks
      • Undertaking tax loss harvesting to offset realized gains in the portfolio

    In difficult times, clients will look to advisors for calm, steady leadership. It is a moment of need that no robo-advisor or customer service line can compete with. Read more on Beating Back the Challenge of robo-advisors.

    Please reference disclosures: https://blog.americanportfolios.com/disclosures/

    About The Author

     

    Vice President of New Business Development and Advisor Relations 
    631.439.4600, ext. 200 

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