My longtime business partner jokes that financial advisers are like television meteorologists: We wear fancy clothes, wave at charts, and when markets don’t behave as expected, we quip, “This stuff is impossible to predict.”
While it is hard to predict the weather, most people understand that it’s just as difficult to predict the markets. Knowing this, why is it that so many people see financial advisers as pseudo-soothsayers who should know just when to buy and when to sell?
It’s up to us to educate our clients on the value we add and to set proper expectations so they'll stick with us during the market cycles and not get hurt by bailing out on their financial plans.
Whenever I bring on a new client, I set the tone by stating something to the effect that: “While over the next 20 years, I’m highly confident your financial goals will be achieved, and your savings will grow … I’m not sure what the first year or two will be like. Hopefully, during our first year together, your accounts will have tremendous appreciation and you’ll be so grateful you’ll want to adopt me as a family member. However, it’s just as likely that our first year together will be disappointing. It might be that your accounts decline in value. Perhaps significantly. So much so, in fact, that you may quite possibly want to drive by my office and throw a brick at my head.”
Having advised clients for more than 30 years, I have journeyed with people who have had phenomenal results with me during our first year together and others who have been extremely frustrated. By setting realistic expectations up front, the results have never been a complete surprise, and so I will often remind folks of the conversation we had at the start of our relationship.
While that helps set expectations for their investment performance, I have found it’s equally important to set expectations as to what services I will provide, what services I won’t provide and what our communication cadence will be.
Many clients simply don't know what to expect from their adviser. Will he or she call me every couple of weeks with an investment tip? Will we meet every quarter to discuss investment results?
I have found it highly beneficial to discuss these issues up front, in fact, right after someone commits to becoming a client. I will lay out what our next 12 months will look like: when we will meet, what we will discuss and what they can expect from me. For example, I’ll tell them that I find telephone tag highly unproductive and to avoid it, I prefer phone appointments rather than exchanging calls. I do make sure they know that I will reply to all emails within 24 hours.
So much goes into advising, and this is not intended to be comprehensive. But the better you are at setting expectations right from the start, the greater the career you will have as a financial adviser.
Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with approximately $16 billion in AUM.
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