How to wave goodbye to insistent clients

How would you react if someone grabbed your smartphone and ran off with it? Would you give chase, stand and shout or just shrug and put it down to experience? Unless this has actually happened to you, the chances are you just don’t know.

Not knowing what sort of behaviour to expect can also be applied to clients and investment markets. Many clients will say one thing when sitting in front of you, their adviser, while having a rational discussion about their attitude to risk, yet react in a completely different way once world events start to impact negatively on investment markets and their pension savings. (Unsurprisingly you won’t hear from them if world events are having a very positive effect.)

It’s not that the client was being untruthful at the meeting; it’s more a case of they probably didn’t know this was how they’d react until it happened.

A good case in point is around the lead up to the Brexit vote when it was reported in the media that advisers were seeing a noticeable increase in insistent clients asking for their investments to be moved to cash as nerves around the predicted financial uncertainty should Britain vote ‘no’ kicked in. Of course, at the time nobody could predict what would happen but as experienced advisers know, it’s time in the market and not market timing that delivers results over the long term.

Two months after the vote and those clients who did cash in their investments saw their returns well down on what they could have achieved, and the chances are their advisers were the ones feeling the pressure to do something to make it better.

So, what can you do to mitigate the damage to long term investment strategies should your clients insist they’d rather have their money stuffed in a mattress?

One answer is to use tools that give you, and your clients, in-depth insights into their financial behaviour. Ideally this should be done at the start of your investment relationship with them rather than at the point they lose confidence. But, it’s a useful thing to do at any stage because it can help the client understand their reaction and how this can have a negative impact on their long term expectations.

The best tools use academically sound behavioural finance at their core and ask all sorts of questions that are designed to reveal exactly how your clients might behave in certain scenarios, overlaid with information that you can use to coach them to understand what they should expect from the investment process over the long term.

This includes examining the emotional side of investing. Talking through the recognised range of emotions clients can expect to experience during a typical investment cycle, from optimism, euphoria, anxiety, panic, despondency, hope and back to optimism, for example, can prepare clients for inevitable peaks and troughs in market performance and provide an ideal framework for building trust and understanding.

If you use the right tools at the start, you not only add value for clients through the insights and coaching you provide, you also give yourself a fighting chance of helping your clients achieve their long term financial goals.

A version of this article first appeared in Professional Adviser.