The Dow decreases. There is a high likelihood that things will get worse. Even if the Fed is able to stabilize the credit markets, the derivatives mess portends an ominous future. You pride yourself on the fact that most of your clients have lost only a small percentage (%) so far, while the more aggressive are bleeding a much greater loss. Your hope is to maintain your client base. But you can do much more. But the quiet truth is that you can grow your practice even during treacherous times.
Are you diligent in making calls to your top tier clients? In past Bears, you have learned the lesson that making frequent client calls is a great way to hand hold your clients.
In a Forester research study, advisors who talk to their clients at least once a month during volatiles times, lose fewer assets and less business. But what should you say on those calls.
Here is a 4 step process to not only avoid losing clients and their assets but also build your practice.
1) Bring your client back to the original plan and goals.
When making the monthly follow up calls, he then uses the exact words the client stated in that meeting. When we first met 2 years ago, you mentioned that your most important goals are having an income of $.... a month and make it last until you pass away, provide for your kids college expenses, and travel during retirement at least 4 times a year at an expense of $.... per trip.
Are these goals still important to you?
Bringing your clients back to their original goals will assure them you are still in control and on track to help them succeed at meeting them.
2) Let your clients know that the markets and investments are set up to make the layman minimize return and possibly lose capital.
In one study, if an investor missed the 40 best-performing days in the market from 1963 to 1993, the average return would have dropped from 12% to 7%.
In the Journal of Economic Behavior and Organization, wrote that more people make mistakes by not investing than by investing in the wrong things.
In one market report, researchers stated the average increase from market capitulation is 38-62% of the bear market decrease, within the following 90 days.
There is also a high tendency for investors to avoid making changes to their portfolio despite good reasons for doing it.
In one University study, subjects were offered a choice of various investment products and expected returns. After making choices, the participants were informed some of the choices were already in their portfolio. 47% changed their mind and decided to stay with the products currently in their portfolio.
This is one of the reasons clients are often willing to ride an investment into ruin.
3) Be armed with at least 3 solid stories of your clients who weathered bad/volatile markets in the past and came out ahead using your advice. The reason your clients panic during market downturns is due to emotion, not logic. Dont try to console them only with logic, they wont stay convinced. They can't remember the logic and are again consumed by emotion. That is why you should always use solid Behavioral Economics arguments followed with stories the clients can remember. If you can do that, you wont have to say the same things over and over to the same clients.
4) At the end of the conversation, ask for referrals. I am sure the last thing you think of in a market downturn is ask for referrals. Its like asking a car crash victim to buy life insurance while still in the ambulance. Yet while most advisors don't even call their clients during downturns, you will be able to pick up more market share (clients) who are terrified about losing even more money.
I played tennis in our regular Sunday match. The topic of conversation was how much money we all lost the prior week.
I flippantly asked if any financial advisor had contacted them over the last 12 months. All shook their heads no.
According to one study, 57% of your clients would leave you if another advisor approached them. This means that many High Net Worth clients would meet with you if you had the courage to ask.
In another study, researchers discovered that 89% of clients cared more about the relationship with their advisor that about market return.
After steps 1-3, here are the words you can use to gain referrals:
I really enjoy working with you.
I am always trying to build my business with my best clients.
Who do you know who could benefit from the kind of relationship weve had so far and possibly worried about losing money right now?
Who isn't worried about their investments right now and could benefit from a great relationship with you?
Using this script will secure referrals and one new client within 6 months from every referral request.
Contrary to common sense, your clients depend more on your ability to communicate than your ability to pick investments.
There is no rule that you have to lose clients during volatile markets. In fact, most of my clients who sell fixed annuities are having a record year. They are gaining clients and assets because prospects are scared and need someone to keep their money safe.
70% of these high net worth prospects don't have an advisor and the remaining 20% have absentee financial advisors.
This is the best time to protect your client base and gain more referrals