August 3, 2010
Be careful about only telling one side of the story –by demonstrating that you’ve looked at the full gamut of views, your ultimate recommendation has more power.
If you’re recommending clients stay fully invested, it’s important to show clients you’ve examined the negative case.
And if you’re cautious and recommending cash, it’s helpful to demonstrate that you’re not ignoring the optimistic voices.
By sharing the arguments on both sides of the debate with clients, you position yourself as someone who considers all the facts before reaching conclusions and making recommendations.
The interviews with Shiller and Siegel allow advisors to present both sides of the argument to clients – and to use these as a jumping-off point for a conversation. If you’re going to use one of these interviews with clients to support your case, you might want to send clients not just the one you agree with, but both interviews – and then talk about the contrary case that you presented.
This entails a longer, more detailed conversation – but it’s this kind of conversation that helps clients stick to their plan when the market goes against whichever stance you’ve taken.
Two routes back into the market
A final comment on helping clients get back into the market:
After your discussion with clients, you may agree that it makes sense to increase their stock allocations. At that point, you can go in one of two directions.
One is to immediately move to the target allocation. The advantage of making the full move now is that clients will benefit from any run-up in stocks and you won’t have to contend with hesitation to complete the commitment in six or twelve months.
The downside is that if markets suffer a short-term setback, you risk heightened anxiety from your client and potentially losing the client entirely.
The other route is to phase that move in stages, with perhaps a third now, a third in six months and the final portion in a year.
For many clients the decision to put in a third now and phase in the rest is a more comfortable process than investing the total amount right now.
Further, by suggesting that you phase-in the commitment, you reduce the risk of clients wondering whether your advice is influenced by the desire to earn higher compensation from funds that are invested in the market rather than sitting in cash.
To watch videos of some of the interviews with Jeremy Siegel, click here. Here is the transcript of those interviews.
And these videos summarize Robert Shiller’s views on the market. Here is the transcript of those interviews.
Dan Richards conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written and video commentaries and to reach him, go to www.clientinsights.ca.
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