In last year’s “Coach through Biases” whitepaper, J. Womack and I set out to discuss how a goals-based wealth management process can help investors (and their advisors) overcome behavior biases and hopefully achieve better outcomes.  In the paper, we argued:

  • That traditional advisor-driven financial planning should be replaced by co-planning, an ongoing engagement process supported by the use of technology, which places the client in the center of the conversation, with the advisor serving as coach.
  • We stressed that instead of creating one portfolio that supports multiple goals, advisors should consider multiple portfolios for multiple goals to help modify investor behavior.
  • We believe that performance reporting versus a specific un-investable benchmark (for example the S&P or the Dow) should be exchanged to show probability of reaching success or obtaining the goal.
  • Lastly, we suggested that many advisors might be overconfident in their own abilities in both managing money and preparing their clients for volatility.

Risk on

This post isn’t going to be about the coronavirus and the markets; it will not be about the fear trade. By the time we publish, who knows what will have happened, since this was written on February 28.  

This post is about an opportunity missed by many advisors during times of market decline and confusion.  

Let’s start with overconfidence. In the last few days, I have seen multiple tweets from advisors who have probably dislocated their arms patting themselves on their backs to boast how they haven’t had any calls regarding market volatility. I’ve seen self-praising tweets about their conversations with clients in the past cautioning them about market volatility to come. I have also seen a slew of impersonal advisor communications that try to discuss the recent news with an investment message and an investment answer of stay the course.

In the Coaching through Biases paper, we surveyed 608 advisors, asking if their firms have a process in place to combat emotional behavior caused by market volatility. We found that:

  • 59% claim to have a process in place  
  • 60% report that they stress the need to stay the course from the beginning of the relationship and continue to emphasize throughout
  • 28% say they proactively contact all of their clients, either digitally or by phone, when markets are turbulent 

This all sounds great, right? However, our non-self-directed investor survey of 653 households told a different story.

  • We asked, “If there is volatility in the market, how likely are you make to changes in your overall portfolio?” 50% of advisor-assisted investors reveal they are likely to make changes to their portfolio, leading us to believe that your clients are expecting some action from you.
  • At the first sign of volatility, 63% of boomers and 64% of the silent generation are more likely to call their advisor. If your phone is not ringing, are they calling someone else?
  • HNW households said they were less likely to call their advisor (37%) and more likely (43%) to start moving money from one investment vehicle to another.
  • Two thirds of the respondents describe their investment philosophy as buy and hold, yet 40% are likely to make changes to their portfolio in an effort to protect it during volatile markets.

Sucker punched

I think Mike Tyson once said, “Everyone has a plan ‘till they get punched in the mouth.” Some advisors think that a computer-driven risk tolerance score and a generic “stay invested” message is a great plan. They think that they don’t have to contact their clients because the clients are not calling them. They can send out impersonal content and feel like they did their jobs. But by looking at the markets, clients (and their advisors) are being punched in the mouth right now and the plan is out the boxing gloveswindow. 

So where do you go?  Right now, it is about communication — personalized, customized communication. Based on our study, you can’t assume that your clients aren’t worried just they’re not calling you. Every advisor worth his or her salt should be out there, right now talking to every client.  

Here are some ideas:

  • Acknowledge their fear, understand where it comes from and don’t try to use numbers and percentages to overcome it. Irrational fear is exactly that, irrational.
  • Personalize your message. At the bare minimum, use personas to customize a message. Retirees will be thinking differently than millennials, so address the conversation or messaging to each. 
  • Reinforce the plan. Co-planning is the art of giving clients the opportunity to think more deeply about their money and what they want it do for them. It is not about the short-term downturn that we all knew would happen and planned for; it is about the probably of future success.
  • Be transparent. What are you worried about, what are you watching for, and what actions are you taking? What are the managers in the portfolios doing? What are they concerned about and what would cause them to act?

Overconfidence in your abilities, communications and planning can be a liability in times of turmoil. But action in the form of personalized, customized communications can strengthen your relationship with clients, and reinforce your leadership.  

Instead of bragging that your clients haven’t called, wonder what you will do if they got punched.

Legal Note

Investing involves risk including possible loss of principal. SEI Financial Advisor Survey, Behavior Finance; April 2019, n=608. SEI, in partnership with Phoenix Marketing International, March 2019, n=653 total affluent U.S. households. Phoenix Marketing International is not affiliated with SEI or its subsidiaries.


Legal Note

Information provided by Independent Advisor Solutions by SEI, a strategic business unit of SEI Investments Company. The content is for educational purposes only and is not meant to provide investment advice or as a guarantee of any specific outcome. While SEI welcomes comments, SEI is not responsible for, and does not endorse, the opinions, advice, or recommendations posted by third parties. The opinions expressed in comments are the view(s) of the commenter(s), and do not represent the views of SEI or its affiliates. SEI reserves the right to remove any content posted by users of this site in its sole discretion.

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