Demonstrate your value by redirecting clients to what's controllable
Steven Plewes, ChFC
When the world feels out of control, you help your client — and show your value as a financial advisor — by redirecting their focus from what can’t be controlled to what can be controlled.
In the investment arena, there are four things that can be controlled:
You can continue to look for low-cost investments and low-cost opportunities for your clients’ investments.
This could be a good opportunity to employ tax-loss harvesting or sell investments that may have been underperforming, and do so without actually realizing a taxable event. Additionally, gifting low-basis stocks could be advantageous during times of market decline.
Generally, risks are controlled through diversification, dollar-cost averaging and rebalancing portfolios. Many investment platforms have automatic rebalancing built into the portfolio. This is a way of managing risk.
Ideally, a client's portfolio should be positioned so that they can ride out any investment decline or any market correction, which is inevitable. If not, this can be a goal for future conversations. But risk can be controlled.
You can control, or at least influence, your client's behavior. It's a well-known fact that most of your client's tendencies are to sell low out of fear and to wait until things seem safe and buy high into investments. The No. 1 thing that you can do for clients is to remind them that their behavior is a major determinant toward how their portfolio performs over time.
By discussing with clients what can be controlled, you bring some peace of mind and sense of control to the client, and that further demonstrates your value.
What cannot be controlled?
This is also important to discuss with clients. You cannot control performance. No matter how much you get measured by it, no matter how much you like to talk about it or how much you don't like to talk about performance, there are so many external actions that affect performance over which you have no control whatsoever. For instance, we have no control over how governments respond to a market crisis. We have no control over the currency policies of other countries. We have no control over viruses or acts of war. So it's important to remind your client that this is not the place to focus.
Remember, if we control what we can control — costs, taxes, risks and behavior — then performance will take care of itself over time.
Steven Plewes is a 33-year MDRT member and Top of the Table qualifier from Naples, Florida. Read more from him in the blog post, “Managing clients’ emotions.” or pick up a copy of his book, The High Altitude View!
This originally appeared in the MDRT Blog.