Educate Clients What It Really Means to Invest
No matter how inherently intelligent your clients may be, never assume they have a clear understanding of what ‘investing’ really involves. For many people a financial plan consists of having money in an account that continually goes up in value. To them, a share of stock is a lottery ticket, no more and no less.
As a financial advisor, it’s your job to secure your clients’ financial futures and prepare them for retirement or make sure they can afford college fees for their children without borrowing money. This won’t happen unless you can instil into them that investing is a long-term business; it’s not about getting rich quickly – it’s about ensuring they are never poor.
Overcome the curse of knowledge
Confusion kicks in when advisors assume their clients know what they know. This is often manifested in the language Advisors use, or the principles upon which conversations tend to turn.
To influence clients, you need to overcome the curse of knowledge. As an advisor, you know that when interest rates go up bond prices fall. You know that when the market is in a sustained rally it is overbought and dangerous. But while you understand these concepts well, there’s no reason to suppose your clients have an inkling; they are not privy to your wealth of information and they don’t have the benefit of your accumulated knowledge and experience.
You are cursed with the burden of knowing all that you know. Avoid using yourself as the mental model. We don’t all laugh at the same jokes. We don’t all share the same values or thought patterns. We’re not all on the same page.
Use stories and analogies to level the playing field
When you explain to clients the right way to invest, use stories. They will force you to speak in a way that clients will understand. Everyone remembers a good simple story. To establish the importance of thinking long term, refer to your client’s date of birth, graduation and wedding dates. Show them what the stock market was doing on each of those dates.
To prevent them from checking the prices every day, ask them whether they would pull up their plants every day to check the roots, then replant them. In the exact same way, how can investments do well if they keep obsessively checking them and redirecting them every day?
Explain there will be no gain without some pain
A key part of your role as a financial advisor is to educate clients on what investing is, why they need to do it, and above all – why they need your help.
Everyone wants higher gains, growth and performance, but no one wants to endure any pain so you need to tell people the realities about investing. Markets will go up and down, but with your help and perseverance your clients will arrive at their destination on time – and then they will hopefully not need to worry about money.
Why employ a financial advisor?
To get across the importance of hiring a financial advisor remind clients that the only people who lose weight are the people who hire personal trainers; not people who go it alone, buying the latest fitness equipment only for it to stand there and gather dust. Without someone to motivate and guide them – and ‘get them on the treadmill’ even the best equipment in the world won’t get them the desired results.
You can provide an objectivity that clients cannot apply to their own investments. You can help prevent them from making ‘hair-trigger’ decisions based on emotion.
By educating your clients on the realities of investing you are already half-way there to ensuring they enjoy a secure financial future.
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