Put Investing in Terms That Clients Can Understand
Everyone knows that cars go down in value. That’s just the way it is. No matter what you pay for a car, and no matter how carefully you look after it, it’s going to be worth a lot less than you paid for it. It’s never going to bounce back in value, but car owners are okay with that. They are pre-conditioned to the loss.
However, clients don’t see their investments this way. They think investments are only supposed to go one way – up. When investments go down, clients feel they have lost money, even if they have not sold out. They will take a hard loss on a car and not bat an eye, yet they can’t stomach a paper loss in their portfolios.
Get clients to understand the nature of investing
Your job is to get clients to perceive things as they really are when it comes to investing. You need to find a way of explaining why it’s a good thing that markets go up and down; that to encounter some market volatility is the norm – it’s expected. Once they understand this they will be far better placed to stick with the plan for the long term.
Remember that people don’t buy into ideas they don’t understand
While you understand completely the language of investing, your clients don’t. So, break things down into language they can understand and make the unfamiliar familiar.
Use analogies. If someone is reluctant to commit, ask them if they would be prepared to drive at breakneck speed to get to a destination on time. Tell them that investing is exactly the same. If they start too late, they will have to save a huge proportion of their income every month to achieve any hope of enjoying a comfortable retirement. If they have a three-year old, that child will be heading off to college in just 180 pay checks. If they don’t start investing right now, how are they going to be able to afford to pay for their kid’s education in 15 years’ time?
You are your client’s last line of defense
You are the last line of defense between the client and him or herself. You are there to stop them making serious errors of judgement. You are there to guide them. You’re not paid to manage returns – but to manage their expectations and behaviors. This includes preventing your clients from chasing irrational ideas for emotional reasons. To do this you need to speak plainly. Be straightforward. Explain things in a language they can understand.
If a client walks into your office with a ‘hot tip’ that’s left them so fired up they want to shift their assets, you need to tell them straight away what could happen. Tell them that if things go wrong (and there’s every chance they could) they would lose the money they’ve set aside for their retirement or child’s education. They could end up back at square one. Are they really prepared to gamble their future on someone’s say so? Tell them that you as their financial advisor are not prepared to stand back and watch them do this.
Get your clients to envisage the future they want
Keep clients invested by helping them create their own vision story. This will shrink down present day difficulties and get them to focus on the payoff that’s waiting down the road.
Encourage clients to imagine what their life will be like once they’ve achieved their investment goals. Get them to imagine in detail the sights and sounds of this ideal future. What will it feel like when they can play golf every day? Will they be living in a condo in a sunny place? How will it feel to be able to go traveling whenever they want without any financial constraints?
This exercise will help clients understand that while the investment journey is not easy, it can be done – and all the effort will be worth it.
Get them to play it back – so you know they understand
Your job is to manage your client’s expectations. They will base their expectations on what you have said to them. So, make absolutely sure you are both on the same page and that they have interpreted what you’ve said correctly.
Get them to play things back – ask them exactly what they expect. The closer you get to their expectations, the easier the ongoing maintenance will be. The likelihood is that your clients simply want to beat the bank – but by how much?
When you talk with clients you need to speak in a language they will understand. You will most likely be introducing them to new ideas and trying to change their perspective. This is not an easy thing to do, in fact keeping things simple isn’t easy at all – it’s a soft skill that can take years to learn.
But if you persevere and manage to get across the importance of investing, having realistic expectations and the concept of market volatility – you’ve just set the scene for a harmonious relationship that will stand the test of time.
See how Don Connelly 24/7 can help you build and manage better relationships with clients.
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