Keeping The Peace
Investors have been through turbulent times of late.
While the global financial crisis has ended, the signs are increasingly pointing to a ‘W’ recovery and many investors have been left scratching their heads and questioning the value of advisers.
The problem is; while investment returns are just one ‘value add’, for the majority of consumers it is the overriding reason for seeking advice.
Having watched their portfolios decline, recover somewhat (for those that stayed invested) and subsequently resemble a lie detector monitor, some clients are now in the market for a new adviser.
But if they had been managed effectively by the adviser, this may not have been the case.
Consider the client’s perspective. Advisers receive their fees and commissions for providing advice – whether the markets perform or not.
Not many clients fully understand exactly what constitutes ‘advice’. Advice on the ‘right’ investments? Advice on which investments will provide long-term growth with an income kicker each half year? Advice on which unknown speculative stock will be the next Google?
Or rather, in light of the blood bath during the GFC: Which stocks should be avoided? Which stocks have the potential to blow-up and decimate my portfolio – like the Babcock & Browns and the Centro’s? Should I be jumping into cash before the economy implodes?
All of these are reasonable perceptions of the role of the adviser, but ask any good adviser and they’ll be the first to admit that they don’t have a crystal ball.
They don’t know which stocks are going to blow-up and which stocks will soar, and nor should they – predicting the future should be left to clairvoyants.
The key to being a successful financial adviser is two fold. Managing the portfolio is obviously important, ensuring sufficient diversification across both investments and asset classes to manage the portfolio risk in line with the client’s financial goals.
However the lesser known or understood attribute of a successful adviser is much more personal and arguably more valuable in retaining business through turbulent times – and that is the ability to successfully ‘manage the client’.
Many successful advisers understand that managing a client’s expectations and emotions is the key to building a loyal and long-term relationship with their clients.
Advisers must not only provide realistic expectations but also ensure the client fully understands how each decision ties in with their overall financial strategy.
Communication is paramount to ‘managing the client’. More often than not, advisers who are in regular contact with their clients through the good times (but even more so during the bad times!) will develop strong and profitable relationships.
Clients who understand that negative turns are not only possible, but are to be expected, are much better prepared for the harsher times and less likely to go shopping for a new adviser when the economy takes a hit.
The adviser who hides from clients and is reluctant to deliver bad news is one that has not adequately managed the client’s expectations and has failed to articulate the true value of advice.
Advisers whose clients are encouraged to challenge their decisions, air grievances and have an open, two-way conversation will open up another channel through which they can develop the client relationship.
Consider the client who has concerns and gripes but does not raise them with the adviser; which do you think is more likely to go shopping around?
Captain says:
Nice article – well articulated and concise.
Yachticus says:
A salient commentary – and these views are shared equally by advisers.
If you consider for a moment that the typical client will pay between 1.5 and 3.5% of value of assets (including MER, Platform and Adviser component – and that the adviser acts as a lightning rod for the clients discontent.
The lions share of costs borne by the client are collected by fund managers, platforms and dealer groups – its little wonder the adviser is copping it from all sides.
A tough sell to clients when the adviser can only control a minority of the costs.