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A study by Vanguard found that investors who placed the highest value on their relationship with their advisors attributed 40% of the incremental value to “emotional elements” like trust and personal connection.
The Vanguard study triggered these thoughts: What protocol do you follow to assist your clients during these difficult times? Is it supported by peer-reviewed evidence?
An anomaly
The Vanguard study reinforces the widely held view that providing emotional comfort and “keeping investors in their seats” is a critical part of your value. How you should do this is a subject that hasn’t been widely discussed, leaving it up to each advisor to follow whatever approach intuitively makes sense.
It’s anomalous that the same advisors who have an investment philosophy well-supported by academic evidence don’t adhere to similar standards when responding to concerns of their clients.
A flawed approach
The current bear market has unleashed a flood of articles and videos by advisors. Many of them seek to “explain” or “make sense” of what’s “going on.” They often provide extensive data to put the current situation in historical context. The assumption is this information will be comforting.
While well-intentioned, this variation of “don’t worry, be happy” can cause heightened anxiety.
Worrying has an undeserved negative reputation. There are many benefits of appropriate levels of worry, including protecting us from danger, causing us to seek more information, keeping us on track and demonstrating our love for others.
Think about it. When your loved one goes to the grocery store, aren’t you worried about the risk of their catching Covid-19? It would be normal to be.
Would you find it helpful if a trusted friend told you not to worry, and gave you statistics showing the likelihood of contracting the virus at the grocery store was relatively low?
I doubt it.
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A better way
Understand the appeal of being asked for advice. Giving advice makes us feel valued and competent. In fact, one study found those who gave advice were more elated than those who received it. Curiously, when you tell your clients not to worry, the positive impact on your level of anxiety may transcend theirs.
Before you reflexively give advice, remember how tempting it is to dispense it. Then tread very carefully.
It’s normal for clients to be concerned about market volatility. Those clients may respond well to data about previous bear markets and how long it took for the market to recover.
But what about clients whose level of anxiety seems excessive, bordering on panic? These clients may need an entirely different approach, which you are not trained to provide.
There are well-researched ways to reduce anxiety. They include therapy with a qualified professional, the use of anti-anxiety medications where appropriate, meditation and exercise.
You’ve heard the expression, “to a hammer, everything is a nail.” It may also be true that, to an advisor, every problem has an explanation rooted in finance. While financial advice and perspective is appropriate in some circumstances, in others it can actually be harmful.
Knowing the difference is a way you can really add value.
For more information about marketing and branding opportunities with Dan’s upcoming book, Ask: How to Relate to Anyone, click here.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
