January 20, 2009
Part Four: Looking to the future
Now turn over the piece of paper in front of you and write “Five years from now at the top,” drawing the same line down the middle.
Say to clients: “Let’s shift our thinking out five years – what are the things that concern you about the market in five years time?”
Clients may talk about the lingering after-effects of the current financial crisis and the budget challenges faced by the U.S. and other developed countries, especially in light of an aging population – both legitimate concerns.
Once you have identified mid-term causes for concern, shift your attention to the right hand side of the page and ask clients about reasons to be optimistic in the mid-term.
In the spring, I recorded a video titled “The case for long-term optimism” – you can view it in the archive of videos on my site.
Among the reasons for optimism I identified at the time that still apply today:
- The positive effect of technological innovation on productivity, economic growth and corporate profits. Despite the economic crisis, we’re still seeing more investment in r &d around the world than ever before – and the internet is helping disseminate new discoveries more quickly so that we get a bigger bang from every research dollar invested
- A continued expansion in global trade and a trend towards reducing trade barriers – a hugely positive development for markets
- No reason for concerns about inflation and the ability to keep interest rates low as a result, a big positive for markets
- Good news economically and politically from most of Eastern Europe and Latin America
- The continued opening up of economies in China, India and throughout Asia and the resulting rapid growth of the middle class in those markets
At the end of this exercise, you might wrap up by referring to Warren Buffet’s quote at the top of this commentary, saying: “When it comes to the stock market, it’s impossible to forecast what’s going to happen in the next six minutes, six days, six weeks or even six months with any confidence. And that’s especially true these days.”
“What we can be confident about is the positive outlook for the next five or six years - that positive mid term outlook is the reason we’re invested.
“If you decide that you want to pull back as a result of the current uncertainty in the markets we can certainly talk about that. Remember though, that all the bad news that we’re aware of is already reflected in stock prices.”
Go on to tell clients: “That doesn’t mean that the market won’t continue to be volatile and that there’s not a chance we could see more declines over the next while – nobody can predict short term movements and stocks can stay undervalued for long periods, just as they can stay overvalued for a long time.
“Over time, however, stocks revert to their true value. And the risk we run if we go to cash is that we’ll miss out on a dramatic turnaround – history shows that when markets come back, they often do so faster than anyone anticipates. Yes, there will almost certainly be continued volatility along the way – but there is a strong case to be made to be very optimistic about the mid and long term.”
At this point, you may want to refer to some of the broadly available material on how quickly markets have recovered from downturns in the past – most fund companies have excellent tools on their website that address this.
I talked to one advisor who disagreed with warning clients about the possibility of continued declines – “Why cause concern?” was his view. Remember - if you don’t talk about the possibility of further declines, you risk your credibility down the road and also risk being seen by clients as a “market cheerleader” rather than a source of objective advice.
In Closing: Making this approach yours
For this approach to be effective, you have to incorporate your own philosophy and point of view. Modify the examples I’ve used to reflect your own opinion. Use only the examples that you’re comfortable with – this is not an exam, where you have to memorize all the instances I’ve listed above.
And you may want to adjust the time frame. I’ve used five years as the point in time to get clients to focus out – depending on your point of view, this may be too long (and there’s no question some clients may struggle at thinking out five years) – or if you take a truly long-term view, five years may not be long enough.
Be sure to practice this a few times before trying it on an actual client, so that you are comfortable with the flow of the argument outlined here. Note that for this to work, it really has to be done one on one – for mid-sized clients, consider doing it in small groups, perhaps over sandwiches in your boardroom.
For many advisors, the biggest task is getting clients focused beyond the immediate challenges we find ourselves dealing with. Consider using this structure to get clients engaged in thinking beyond the near term - or develop your own method.
However you do it, bringing fresh perspectives and finding something new to say when you’ve said it all should be a top priority for most advisors.
*Dan Richards helps advisors with marketing and client retention strategies. He can be reached through his web site (www.getkeepclients.com)
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