How to Reduce Client Fear with Your Process


“The only thing we have to fear is fear itself” – Franklin D Roosevelt

This iconic line was delivered to a nation embroiled in one of the most significant financial downturns in recorded history – the Great Depression. Those words struck a chord that day that still rings true today, particularly in the world of financial advice.

Fear clouds judgement, a particularly dangerous effect for investors. Fear has the unnerving ability to cause investors to abandon their disciplined approach in favor of subjective decision making. As advisors are aware, decisions led by emotions, rather than objective process, can threaten the long-term financial well-being of your clients.

Managing fear is a key competency for financial advisors. But how can you do that reliably? All clients are different, and your focus is already split between the overwhelming demands of running your daily practice.

It begins and ends with your process.

Humans display a natural aversion to ambiguity, or uncertainty. We have a natural tendency to avoid the unknown in preference for what we think is more certain – as seen in clients selling at market bottoms and buying when stocks are high. Investors tend to trade an unknown (what may come), for what they can see today.

By strategically leveraging your process in three stages of the investment journey, you can reduce uncertainty – regardless of market conditions.

Initial Onboarding Process

In a world of increasing commoditization, your process is what differentiates you from your competitors. Define your process clearly in the beginning stages of the client relationship. Take the opportunity to paint a clear picture of what investing with you will look and feel like. Help prospective and new clients understand how and why you make your investment recommendations. 

By emphasizing your process to clients early, you can proactively reduce client uncertainty, build trust, and ingrain the important role objectivity plays in helping them reach their financial goals.

Portfolio Construction

Your investment process is obviously instilled in your portfolio construction process, but it’s important to explicitly discuss with clients. Build on the foundation you’ve created in your initial onboarding process by demonstrating how your process plays out, practically. Break your investment recommendations down into digestible steps. Discuss how each allocation decision supports that client’s particular risk/investment profile, and how they can expect that asset to behave in varying market scenarios (growth, decline, volatility).

By demonstrating how your process translates into practical investment decisions, you can help clients better understand their portfolio – why each asset was chosen, what their portfolio is designed to do, and how it should react to market movement. Aligning expectations with realistic portfolio outcomes, backed by a clear and understandable process, can keep your clients from succumbing to the natural emotional responses to market volatility.

Performance Reporting

Reinforcing your process in your quarterly performance reports is arguably the most important step to reducing client fear, especially in times of market volatility. This is one of the times you’ll have your client’s full attention. Use that opportunity to revisit the pre-discussed process, and how that was executed in their portfolio allocations. Discuss how each asset’s performance aligns with the role it was designed to play in the portfolio. 

By helping clients understand why their investments performed as they did, you can further reduce uncertainty and fear. Validate the execution of your process, not in overall returns, but in expected performance, to demonstrate the value of objective decision-making.

Fear is going to be a part of everyone’s investment journey. It’s a natural response to uncertainty. That’s out of your control. However, you can influence how your clients respond to fear with adherence to an objective process. The key is to find deliberate opportunities to highlight your process throughout the client relationship. Your clients will appreciate the clarity, and you will enjoy the easier task of managing a more disciplined investor.

Learn more about managing client expectations with Market Movement Strategies, a unique investment story designed to simplify portfolio diversification.