Client-Adviser Relationships Hanging by a thread
Many advisers are having very difficult discussions with clients at the moment. If the latest CoreData research is even remotely accurate, there are a lot of adviser-client relationships hanging by a thread.
During bull markets, the perceived value of the relationship is linked to ever increasing asset values. I remember reading numerous industry surveys crowing about how pleased clients were with the advice they received. As asset prices spiralled down, the quality of the advice was questioned and the client’s perceived value of the adviser relationship withered.
Financial advice needs a new value proposition. One that is not vulnerable to asset values. One that is durable, consistent and perceived as valuable by each paying client.
The industry commentator who I believe is closest to the answer is Nick Murray. <??> Murray was first to seize on the concept of advisers being behavioural managers. He backed up his assertion with the robust Dalbar research which showed that wealth management has much more to do with how clients behave rather than how smartly they invest.
I’ll stick my neck out and say that I consider Murray’s latest book, Behavioural Investment Counselling, to be the greatest contribution yet to finding a suitable definition for financial advice. The vast majority of commentators tend to over-intellectualise. Murray, and to a large extent Dan Sullivan – another formidable mind – avoid the commodity of technical advice, and focus on the value that is created through the relationship that you hold with each client.
Many advisers describe themselves as “wealth managers”. What does wealth management actually entail? According to Murray, there are six principles that are necessary for successful wealth creation. Three are technical – diversification, rebalancing and fund selection. Most advisers address these with distinction. It’s the other three that are often ignored, downplayed or absent from the adviser-client conversation. These three principles play the most important role in achieving a successful result for your client. So what are they?
#1 – Faith in the future
Successful investing requires an optimistic outlook. Not necessarily of the immediate future, but that the world will right itself and continue on its multi-millenia path to increasing prosperity.
Your role as adviser is to counter the pervasive gloom associated with a financial crisis and bear markets. Helping people to be more optimistic is extremely valuable. If each client can spend an hour with you and walk out feeling more positive about the world, you would have done both them and their portfolio a great service.
Does this mean that you must wear rose-coloured specs? Absolutely not. This simply requires some knowledge of market history so that you can give perspective to each distressing event.
I’ll force myself not to digress here. But one of my pet peeves is people’s general lack of historical knowledge. The value of perspective is enormous. Most people react badly to political and economic events that they would consider trivial if they were able to see the event in context. I’m not downplaying the Global Financial Crisis. But I’m a relatively young guy who has lived through a sixteen year peak to peak bear market (the Dow Jones reached 995 in February ’66 and only passed this mark in November ’82), a global energy crisis in the seventies… I remember being glued to my radio in the early eighties wondering whether the US and the USSR were going to war… more economic catastrophes in the late eighties and early nineties… bond market and banking crises… currency and hedge fund disasters in the late nineties… the dotcom implosion. It rolls on.
If you are curious, spend an hour researching what is meant by the Minsky Moment.
Bottom line? Your ability to enable clients to keep a sense of perspective, and a tendency to remain on balance optimistic, will be greatly valued. Are you a shrink? No. You simply have the knowledge and perspective to see things in context.
#2 – Discipline
Keeping fit takes discipline. Eating well takes discipline. Playing good sport takes discipline. A successful career or thriving business takes discipline. Yet discipline and its very close cousin – accountability – are almost absent from modern life. Those with personal discipline stand out like conquering giants. Wealth management takes discipline. Your clients need discipline to stick to the long term plan you create for them. They need discipline to forgo the desire to spend now in favour of investing now and spending later.
And where is this discipline going to come from? For the majority, nowhere. They will lead frustrated lives, emotionally dependent on the government of the day. They will be filled with a sense of powerlessness and victim to the ebb and flow of their environment. Not so for your clients who are blessed to have a relationship with you that helps them make sensible decisions and then holds them accountable.
Successful wealth management needs discipline and you bring this to a relationship. That’s very valuable.
#3 – Patience
Creating wealth used to be a lifetime pursuit. Only the very lucky or individual prodigies accumulated wealth quickly. Today the perception is widely held that with the right advice wealth can be made quickly. From this belief comes the ongoing chase for a quick buck. So your client sits in front of you and says “Hey. I’ve been in Westfield for nearly a year and it’s gone down. Let’s sell out and move my money to BHP, that’s done better”. You know it doesn’t work that way. But like discipline, the virtue of patience is also AWOL in our society.
I know many impulsive investors who stare at their portfolios several times a day. After a month they’re bored to tears and want to make changes – usually to boot out the underperformers. A recipe for disaster.
You can bring patience to each relationship. Talk about where your client needs to be in ten years, in twenty. Calm them. Don’t be party to impulsive, knee-jerk thinking. You are not an order taker. You are an adviser.
Last word…
These three qualities are not just essential to successful wealth management. They are your USP – your unique selling proposition. They are your competitive advantage. They can only be delivered through the relationship – and a relationship between two people is always unique.
So for those difficult discussions, don’t talk technical. Don’t be portfolio focussed. Don’t focus on what should be bought or sold. Don’t allow the discussion to develop into what returns your client wanted and what returns have been achieved.
Focus on what each and every client needs right now – a sense of optimism, the discipline to make sensible choices and the patience to see the benefits of these choices manifest.
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