Ask any spouse, board member, congressman or collaborator: Sometimes perfectly reasonable people — folks with the best of intentions and decorum — simply fail to see eye to eye. So even with a track record of trust and trials surmounted, why should the relationship between financial advisor and client prove any different?
As one starting point, advisors can leverage cool, rational thinking and behavior — especially in the face of client fear that comes with market turbulence.
“The best approach to overcoming client misconceptions is presenting the evidence that the client has likely not seen before,” says Steve Condon, president and principal of Truepoint Wealth Counsel in Cincinnati.
So where do financial professionals begin? “Often this is data on topics such as the routine nature of market declines, or the high failure rate of active managers,” Condon says. “These are good examples of areas where reality often differs from perception.”
[See: 10 Questions to Ask Before You Hire a Financial Advisor.]
And as it happens, reality versus perception might as well represent the Texas death match of investing. In this corner: financial professionals armed with evidence. And in this corner: investors pacing back and forth between fear and frustration.
But here’s where the metaphor breaks down. Financial advisors who pin their clients to the proverbial mat only lose in the end. And whether the pros are right or wrong, investors will often sense when they’re being pressured (or even coerced) into making a decision.
“A good financial advisor is caring and a good communicator,” says Rich Thompson Jr., founder and financial strategist at Advanced Legacy Concepts in Atlanta. “Studies show the average independent investor loses money because of emotional decisions, which cause them to pull out of investments too early and invest in new ones too late.”
So if anything that resembles pressure enters the picture, it must be gentle.
“An advisor must be able to persuade their clients to fight their natural tendency to become emotional about investing — and more focused on staying the course of a well-thought-out plan,” Thompson says.
“The key is to be conversational as opposed to lecturing or judging,” adds Paul Jordan, vice president, financial planning, at Edelman Financial Services. “This conversation goes best when a planner patiently educates a client on a realistic view of goals-based investing relating specifically to a financial plan.”
One example Jordan cites is when some clients focus too much on beating the Standard & Poor’s 500 index. But impatience — or worse — may enter the picture when advisors find themselves cast in the role of counselor.
“A common scenario planners face is when a husband and a wife disagree on where they stand from a financial foundation,” Jordan says. “The wife may be worried — and rightfully so — while the husband feels everything is under control. Or vice versa. This is where delicate counseling skills are paramount.”
Yet if all of this implies that financial advisors always know best in the client-professional dynamic, that’s about as far from the truth as the investments offered in a scammer email that begins, “Hello, my dear.”
One key to evaluating advisor conduct involves the fiduciary standard — that is, the legal requirement that planners act in the best interests of the client and not put financial incentives first.
Or, it could be as simple as violating the “everything I need to know I learned in kindergarten” principle, says Joel T. Redmond, senior financial planner and vice president at Key Private Bank in Syracuse, New York.
[See: 9 Ways to Buy Stocks That Everyone Needs.]
When that’s the case, Redmond says, “They don’t listen, they talk down to clients, they refuse to question their own assumptions and reasoning, or they care more about incentives than they should.”
Yet if talking down to clients is one thing, speaking their language makes for quite the antidote.
“Financial advisors often have no one to blame but ourselves, because we often fall into the trap by beginning every conversation or every meeting with a review of a client’s portfolio,” says Michael D. Gibney, wealth manager at Modera Wealth Management Westwood, New Jersey.
“We send quarterly reports, monthly statements and other things that perpetuate the problem of an investment-centric relationship,” Gibney says. “But it should be the reverse. The focus should be on planning, and how the investment portfolio relates to someone’s plan.”
Yet often, such conversations prove a challenge given the thicket of investment jargon advisors take for granted.
“I think communication is so critical that I hired a full-time writer for our staff,” says Ted Halpern, president and wealth advisor at Halpern Financial in Rockville, Maryland. “Customizing a portfolio and providing advice is terrifically important. But if the client doesn’t understand it, then they’re not going to follow the financial plan and they’re not going to benefit as much.”
Other times, it isn’t so much the message as the medium.
“For example, millennials like meeting with advisors face-to-face — in fact when it comes to retirement planning, our research shows they prefer it,” says Cathy Weatherford, president and CEO of the Insured Retirement Institute.
Yet those very same millennials, in other instances, “would rather receive a text message instead of a phone call from their advisor,” Weatherford says. “The same is true if we look at how men and women prefer to collaborate with their advisors.”
IRI research shows that women “place higher value on listening skills, communication on their terms, and clear explanations than men.”
So in the end, what will help consumers and financial advisors work through any potential snags? Experts agree that on both ends of the relationship, open minds and cool heads prevail.
But guess what? Emotions are OK, too. Clients can bemoan the fact that a friend just made a killing on a stock, or express fear over a market downturn. Advisors can betray their own frustration when clients fail to stick to a carefully constructed plan.
[See: 10 Long-Term Investing Strategies That Work.]
In the end, looking at the long term — investments and the relationship itself — will yield benefits on many fronts.
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When You and Your Financial Advisor Disagree originally appeared on usnews.com
