Whether financial advisers are dealing with an existing client, or a prospective one, they are expected to provide an honest and objective view of the client's financial situation. As a financial adviser, being able to present bad news to a client is an excellent way to strengthen your relationship and have them view you as a trusted advocate. There are several things to consider before you deliver the bad news.
What is the point? Before scheduling a meeting, advisers need to think about whether clients need to know the news or not. For example, a slight dip in the client's portfolio may not be a reason to worry the client. But if advisers want their clients to choose a next step, this is good enough reason to tell them.
A financial adviser I work with told me that she informs a certain group of clients immediately after market jitters. While she knows a few volatile days won't impact the work they have put in, she also knows these clients require an affirming and calming conversation.
Why did this happen? A good adviser should always be prepared and equipped with all the information before walking into a client meeting. You need to make sure the client understands how or why this has happened. They also need to know how it will impact the long-term plan you have collaborated on.
Educate your clients thoroughly and provide charts, graphs, and other calculations whenever necessary. Rather than acting defensive, work with your clients' skepticism and provide comprehensive explanations and solutions at the ready.
How are you going to say it? When delivering bad news, it is important to remain calm while showing compassion — it's your job to provide a silver lining to the news with apt advice and recommendations.
Depending on the type of client and the type of news, the order in which you present the information is significant. There are two methods of delivering information — direct and indirect. The method you select is based on your knowledge of the audience, and how they will react to the message.
• The indirect method is more appropriate for clients who are more likely to react abruptly and angrily. Leveraging this method provides you with the opportunity to set the scene and provide proper background — for example, when telling clients that if they want to retire within the next 10 years, they won't be able to fund their child's top choice university education. Rather than telling them this bad news directly, start with an explanation of the family's current income and retirement savings, followed by a realistic breakdown of the costs of the university. As the family follows this train of thought, they will be on the same page as you are and either continue working or select a different school. By delivering the bad news directly, you could have been met with skepticism and disbelief.
• The direct method is recommended for clients who are likely to handle the news in a comparatively calm manner. They will provide you with a window to explain the circumstances because they are not as blocked by emotion — situations in which plans are not completely derailed, but perhaps halted. For example, a couple can retire and send their child to school, but they might have to wait for one year after their child graduates.
What are we going to do about it? This is what separates an adviser from a product salesman. After you have presented your audience with the bad news, you will also be tested on how well you can recover from it. Use this opportunity to review your long-term plan and discuss your client's future and how it is not contingent upon one component such as investments.
Much as you did when you explained to the client how we got here and why this happened, this is a time for you to explain how we get out of this.
Presenting bad news to clients is an excellent opportunity to educate your clients and strengthen your relationship. In my experience, most good advisers set expectations when they begin the advising relationship — clients are educated and forewarned that the market does experience volatility and there will be times when clients won't be able to fulfil their financial aspirations. This strategy makes receiving bad news easier, because educated clients say, "You've already warned me about this."
Connie Yan is marketing strategist at Glastonbury, Conn.-based investment manager Symmetry Partners.