by Daniel C. Finley
During a recent group coaching session, a successful financial adviser with 28 years of experience expressed her concern about having to be "right" now more than ever amid market volatility. Feeling as if she needs to time the market perfectly, she said, "If I take a defensive position by recommending that my clients put a large percentage of their money in cash, and I am wrong, I look bad. However, if I don't get defensive and the market has another 900 point swing in one day, I also look bad."
The other advisers concurred with her concerns, but I quickly told the group, "What you need to do is understand the reality of responsibility."
The reality of responsibility is understanding what is and what is not your responsibility-your boundaries as an adviser in a fluctuating market.
First, let's be clear on what is not your responsibility. You are not responsible for carrying a crystal ball. Timing the market perfectly is not your responsibility. Do not assume that you know exactly what will happen in the markets and when; unforeseen events could occur that could ruin your credibility.
Following is a series of realities about responsibility. Use these as guidelines during this volatile market.
You Are Responsible for Explaining to Clients Their Situation and Possible Risks
You must take full responsibility for keeping in contact with your clients during volatile times via letters, e-mails, voicemails, phone conversations and/or in person. Studies show that in difficult times, clients are more likely to leave their financial adviser for lack of communication than for lack of returns.
Constant client communication could also decrease the possibility of compliance issues that may arise from not communicating with clients during volatile markets. You don't want a disgruntled client telling his attorney that he hasn't heard from you in months. Communicating with clients about situations regarding risk is simply the right thing to do. Wouldn't you want to be treated with the same courtesy?
We all hope that clients never lose money, but if you believe valid risks have cropped up, it's imperative you discuss those risks with clients. Not only is it your responsibility as a financial adviser, but it also makes good business sense.
You Are Responsible To Your Clients, Not For your clients
Your boundaries of responsibility lie in giving your clients recommendations, but you are not responsible for clients taking your recommendations. Your clients are adults; they make their own decisions. You educate them, but the final decision is their responsibility. Now, that doesn't mean you shouldn't object if you feel they are taking a big risk.
One financial adviser summed it up well by saying, "Part of the value I bring my clients is to help them from hurting themselves. Often times, I help my clients from making the wrong decisions, but if they decide to do it anyway, I can't control that."
Of course, if a client consistently disregards your recommendations, you may want to reconsider having him or her as a client.
You Are Responsible for Knowing the Facts
Part of your responsibility as a financial adviser is to keep up with current market events. Whether the market swings 900 points in one day or oil spills off the Gulf Coast, you must know what's happening and how current events are affecting the markets.
Does this mean you should know everything about everything? No, but you should be familiar with and versed in any event that can affect their investments and financial goals.
You Are Responsible for Having an Opinion
Clients need to know that you have a professional opinion. They entrust their money to you, and part of that trust entitles them to an adviser who has done due diligence to determine opinions. Now, you may be right or you may be wrong, but we won't know that until down the line. The point is simply to have an opinion in the first place and one you feel strongly about, because not having an opinion implies you have not taken the steps to research what you believe and the opinions and recommendations you are making. (See the sidebar for more information.)
You Are Responsible for How You Convey Your Message
Often times, advisers who convey their message, or recommendation, in an absolute way run the risk of taking on too much responsibility if they are wrong. Here's an example: "You absolutely need to get out of XYZ stock today before it keeps going down." If the client acts on this recommendation and the stock goes up, who takes the blame? The adviser takes the blame for conveying the message in an absolute way.
However, if you communicate the message so as to share in the responsibility, you reduce the probability of being blamed if it turns out that it was, in fact, the wrong decision.
Here's an example: "Based on the information I have today, our analysts are recommending that we sell out of XYZ stock. What would you like to do?"
In this example, "I" signifies ownership of the information you are conveying. Remember, you are not responsible for knowing what will happen in the future. "We" signifies that you also have a vested interested in the decision, and "you" signifies that ultimately it is the client's decision.
Some clients may have a tendency to not take responsibility for their own actions if those actions result in a loss. If this happens, reiterate how you initially conveyed your recommendations. If you follow the "I, we, you" format, you can remind the client that he or she made the final decision.
Reality Check
In the financial services industry, plenty of things are out of your control: corporate earnings, the economy and market volatility just to name a few. What is in your control is how you react to things that are out of your control.
Today's successful advisers are aware of what they are responsible and not responsible for. Take responsibility for things you can control and let go of any responsibility for things that are beyond your control.
Following the realities presented here is not an exact science, but rather a method for understanding what the reality of responsibility is, thus strengthening your boundaries in a volatile market.
Daniel C. Finley is the president of Advisor Solutions Inc., a business development consulting and coaching service for financial advisers. A former adviser, he is now a business development consultant, coach, author, speaker, group coaching facilitator and creator of The Advisor Solutions System (a 24-week group coaching program) and The Monday Morning Motivation, www.advisorsolutionsinc.com/free.html. Contact Dan at dan@advisorsolutionsinc.com.
Sidebar
What's Your 60-Second Market Story?
Investors need to know that you, as their adviser, understand what is happening in the world and can provide them direction.
During a recent group coaching session, I asked advisers, "What's your 60-second market story?" Each was eager to share his or her perspective on the latest headlines, the current market situation and what they were doing. Are you able to explain what the market is doing and why, or are you like a deer in headlights wondering what is going on and what to do next?
If you're looking for direction, craft your 60-second market story by thinking of it in three parts: beginning, middle and end, or another way to think of it is past, present and future.
Here is an example: "The market had been reacting _______ because of _______, ______ and _____. As a result, it is ________. Now, I don't have a crystal ball, but I believe we may see this market _______ in the future because of ______, and as a result I recommend that we ________. What would you like to do?"
Keep the story simple, have reasons to back up your beliefs, and give the client direction on what to do next.
It's important to preface your recommendations with the fact that markets are not stagnant. They can and will change based on additional information that may not be currently known. However, one thing is certain-prospects and clients alike find comfort in knowing that you have an informed opinion and that you can explain it to them in 60 seconds.
- Dan Finley
