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When discussing scary markets with your clients, how do you combine the upbeat inspiration they may want with the upfront, honest information they may need to hear? Striking the right balance makes all the difference.
The optimist’s outlook
Some of the advisors I work with prefer to deliver the strongest possible message of optimism and faith. They want to assure their clients (without running afoul on compliance, of course) that everything is going to be all right if they only remain disciplined. “I prefer to only be optimistic,” one advisor told me. “I’ve had a client tell me it’s my job to be optimistic. His job was to be worried.”
The same advisor told me, “My job is half behavior management. I have to say it like I believe it. I do. If someone is optimistic about the future, they are more likely to work to make it a reality. If you’re pessimistic, you’re more likely to do nothing.”
The pessimist’s edge
Other advisors are more guarded, even when comforting jittery clients. This is my own inclination, too. I dearly want to assume that long-term markets will ultimately deliver healthy returns to those who are patient. But isn’t it disingenuous to be so sure about it?
Admittedly, injecting doubt makes it harder to deliver a stabilizing message to nervous investors who would rather hear you tell them the good news that you know, not what you merely expect. And I myself have never had to experience that excruciating conversation with a panicking investor in need of being talked off the proverbial ledge. In that, I don’t envy you.
Still, there are advantages to a more pragmatic communications strategy. If your goal is to cultivate a client’s long-term adherence to a certain strategy in an uncertain world, being forthright offers the strongest base from which to build a deeper understanding about the real, underlying risks involved. It may not be as immediately calming as simply telling an investor not to worry, but mixing the good news and the bad in proper, realistic measure is a viable approach.
To see how powerful the tactic can be, consider these quotes. Each is part of a larger work that I encourage you to read in its entirety, to develop an even stronger sense of what I’m getting at:
“Even the most brilliant of mathematical geniuses will never be able to tell us what the future holds. In the end, what matters is the quality of our decisions in the face of uncertainty.” — Peter Bernstein, in a 1999 National Association for Business Economics paper, Facing the Consequences.
“It is time now to say what little I can say about the probable course of the stock market from the present level. No doubt that is the point which would interest the audience the most and on which I can be the least enlightening.” — Benjamin Graham, in a 1963 townhall lecture, Securities in an Insecure World. (This one is really cool and one of my favorite reads. Thanks to Jason Zweig for posting it.)
“Capitalism is fundamentally an optimistic system that taps into the deep human desire to strive for a better life. Innovation and entrepreneurship are usually at the forefront of fulfilling that desire. That is why, ironically, capitalism so often experiences bubbles — for it is the hope that gets you in the end.” — Michael Green and Matthew Bishop, The Road from Ruin
“Do the math. Expect catastrophes. Whatever happens, stay the course.” — William Bernstein, Can You Sum Up Your Investing Philosophy in 10 Words?”
