As of this writing, Russian forces are reorganizing in eastern Ukraine, and fighting is well into its second month. Supply chain disruptions continue, gas prices are reaching all-time highs, inflation has become a constant concern, and some analysts are predicting that the Fed will aggressively raise rates. Investors are anxious—and for good reason.
Times like these stir predictable emotional responses in a client. No one is immune. Our brains are vigilantly scanning the world for data so that they can know what to do to ensure survival. In a basic sense, the brain is a prediction machine that takes in information and turns it into motivation for action.
This is a good time to meet with clients and offer them your perspective on the markets. As a client-facing advisor, your ability to manage emotional volatility is just as important as managing volatility in portfolios.
Preparing for a Client Review
There are two important steps to prepare for a meeting with a client. First, consider what is on your client’s mind. Clients are thinking about the future, not how their portfolio recently performed. They are concerned about what is likely to happen over the next several months and how it will affect them. This is a built-in response because of the brain’s desire to predict the future.
Imagine the client asking you a series of future-oriented questions: “Are you paying attention? Do you see what I’m seeing? Do you know what this means for me? Do you know what to do about it?” Clients need to be reassured that you are seeing the world the same way they are and that you know more than they do about what is happening. Their emotions make them action-oriented yet impulsive: anxious clients want to take some kind of action to make the concern go away so that they feel better.
Next, choose your desired outcome for the meeting. Do you plan to propose a set of actions that will reposition assets and create a more defensive portfolio structure, or do you want the client to feel calmer and more confident about the future and leave things unchanged?
Two Types of Conversations
If you want to make changes, your conversation will focus on building concern about the future. This causes the client to be emotionally energized and motivated to take action.
If you want to calm the client, your conversation will focus on reducing impulsivity, increasing confidence in the future and enhancing his sense of well-being. Calmer clients can be comfortable leaving things unchanged.
These are two vastly different desired outcomes. As you prepare, it is important to be very clear about what kind of reaction you want your client to have to the meeting.