A Simple Way to Manage Client Expectations


Client issues – nervousness about the future and unrealistic expectations for portfolio returns – has ranked as the top challenge for financial advisors, above the DOL Fiduciary Ruling and market uncertainty1.

At the end of the day, delivering a positive experience is essential for financial advisors, and it begins with successfully managing and meeting each client’s unique expectations.

The key lies in getting ahead of any potential gaps between expectations and performance.

It starts with a simple assessment.

Instead of leading with a risk questionnaire, take the time to educate each prospective client about market unpredictability. Help them understand how market movement impacts portfolio returns.

Three areas of emphasis:

  • Expectations in growth markets – Do they expect to capture returns that closely mirror those of the market? How much of their portfolio would they expect to be correlated to the movement of the market?
  • Expectations in down markets – Are they willing to trade growth potential for reduced market exposure? How do they want their assets managed in decline?
  • Expectations when markets fluctuate up and down – Do they expect you to find proactive value through active management? To what degree are they willing to assume risk in search of short-term opportunities?

Gauge their attitudes toward each potential portfolio outcome – growth, decline, and stagnation – and document their behavioral tendencies and attitudes associated with each potential outcome. Work to identify their natural behavioral traits, and create an emotional/behavioral profile that represents your client’s decision-making tendencies.

Pair that profile with their risk assessment to create a more comprehensive understanding of the expected investment experience, and construct your portfolios to align with those expectations. This should reduce subjective decision making amidst market change. Whether the market rises, falls, or trends sideways, the portfolio will be aligned to deliver returns that make sense to your client.

And if your client succumbs to the emotional influences of market movement, you now have a resource to reference (your initial assessment). Use it to reaffirm your strategy, and how it is designed to meet their goals.

Help them understand that deviation from the investment strategy in response to short-term market trends can negatively impact their long-term financial well being. Explain the potential discomfort they may experience if their portfolio becomes misaligned with their core attitudes.

By helping your clients understand the value of long-term investment strategies and objectivity in investing, you can better manage their experience – regardless of market performance.

Clients are less likely to pursue alternative services when their portfolios perform as expected. With a focus on managing client expectations, you can better develop client loyalty and sustainable business growth that is independent of market conditions.

Download Preparing Clients for Any Market Scenario - An Advisor's Guide to Market Movement Strategies, and learn more about managing client expectations today.

 

1Capital Group Advisor Survey, June 2016