Not all clients can admit they need help, but it can get easier with the right delivery method
Because of investors’ acute cost-consciousness, particularly when it comes to investments, advisors are being driven to find new ways to deliver value in their services. That includes an increasing focus on behavioural coaching to help their clients make costly financial mistakes.
But even if clients are fully aware that the advice they receive is for their own good, some may be not consider it all that valuable — depending on how it’s presented. In a recent article, WealthManagement.com referred to a Morningstar study that looked at how clients received one of five versions of the baseline behavioural coaching attribute “helps me stay in control of my emotions.”
“[T]hat particular phrasing of behavioural coaching ‘may have sounded judgmental or accusatory,’” the article said, referring to one take by industry observer and financial advisor Michael Kitces.
Researchers at Morningstar compared that baseline description with four alternatives that were tweaked in different ways:
- “Helps people stay in control of their emotions” (depersonalized);
- “Helps me make decisions with a cool head” (avoiding jargon);
- “Helps me avoid common behavioural mistakes (directly addressing behaviour); and
- “Helps protect my portfolio from excessive emotional reactions (for example, panic-selling during downturns)” (avoiding assigning blame to the investor)
“Based on its average ranking, the phrase ‘Helps protect my portfolio from excessive emotional reactions (for example, panic selling during downturns),’ was the most effective at helping investors see the value of behavioural coaching,” Morningstar observed.
While each phrase essentially conveys the same message, the variations in wording can make a tremendous difference in changing clients’ views. This adds to what advisors should already now: clients are irrational to a large degree, and helping them get away from that mode can take a lot of guidance and nudging.
Of course, phrasing things correctly is just part of the solution. Advisors who are serious about removing the emotion from their clients’ decisions should also do a lot of pre-emptive coaching, setting expectations on the fallout of certain market events before those events occur. To reduce clients’ tendency to get swayed by media noise or unfounded tips from friends, advisors should also direct clients toward reliable sources of investment or financial information.
Another issue that can be sensitive is risk appetite; certain clients may be hungry for returns, but may not actually be in a position to tolerate the associated investment risk. Talking them away from the edge can be an awkward or contentious process, but framing the advice in the right way can go a long way toward engendering their cooperation.
