Narrative for clients in bad performance periods
Just like the title says, I am wondering what strategies you use to get through those tough client convos that I assume a lot of us are having to have lately. Do you have a go to narrative default to? Highlight some positive positioning/trade thst you made? Or do you do the old standby of reminding them to look at a longer time horizon?
I’m an analysts supporting IAs at my bank and it’s pretty frustrating that we only seem to be able to do the last one in most cases, so I’m wondering if there’s any alt/better ways of handling it.
Being an FA is part math and part psychologist (managing the human condition). The first part is easy, the latter far more challenging. A major part of the role is properly managing expectations which starts by setting proper expectations up front. FAs who have never dealt with rough markets in a meaningful way have a hard time with this.
The underlying issue is every client wants good returns without getting crushed. That's normal. It's our job to explain risk and keep them allocated accordingly. Definitely more art than science. I have a particular client who comes to mind. Been with me for 20 yrs. I manage all his money, his parents money, and now starting to work with his adult kids. Every time there is a major swing he calls me and asks if we should reallocate, buy X, sell Y, etc. I constantly have to get him to revisit his goals and risk tolerance. If there is no material change and the assets are reasonable to help achieve the goals per the risk tolerance, then no change is necessary. Long term time horizon is key! Much of the rest is noise provided you really know the goals and risk tolerance. Just as important as knowing what they want to accomplish, you need to know what they want to avoid. That will help chart the course and set expectations.
Thanks for your reply. Usually, regardless of what we end up discussing before a tough client meeting where we know performance will be an issue, we end up coming back to that time horizon point, which I guess makes sense. But its amazing how short term some of their memories can be and a lot of them will only focus on data from the last couple of quarters. I guess you just have to stay on message and endure through those.
I would reiterate that you need to know both what they want to accomplish and avoid AND WHY. The WHY is really important. WHY is it so important that you earn X % or grow your account to Y? Would it change your life? If you don't, will it hurt you? Are there specific goals in mind like wanting to buy a vacation home or fund college or start a charity or buy a car or blah blah blah. If you want to fund college and that's a known amount in a known time frame and you have to use these assets to fund, then you better not be so concerned with beating the market. Maybe for those assets you shouldn't even be in the market. Get granular and get them to dig deep in to WHY?
Ahh because if they dont have a good reason for their arbitrary targets, that would mean taking on additional risk to chase after gains they really dont need to meet their goals 🤔 that makes sense.
I probably should've mentioned this originally, but I’m on the institutional side of AM - still, I think that’s some advice that will work both ways. Thanks!
This all comes back to aligning the investment portfolio objectives with the needs of the institution in question. An overfunded pension has very different objectives relative to an endowment who has an aggressive spending policy to support the institution that it supports. To Rickle's point - its so important that up front you establish a thorough understanding of what the institution needs, their investment objectives, ensure their investment policy is up to date and listen to the various stakeholders as you begin the relationship. Build those strong relationships up front during good years and they will help mitigate the challenges of bad years.
Equally important is maintaining a consistency of messaging and clearly articulating what is going on with the portfolio based on all of the above. If you've been saying 'long term' since day one, managing expectations that 20+ percent years in equity markets are not the norm and clearly articulating how your firm's investment process - it's going to be uncomfortable but you probably won't be immediately at risk of being fired.
As far as talking points go it's largely about being proactive, highlighting the decisions in the portfolio (both good and bad), helping them focus on the portfolio relative to their objectives and then simply listening to what their challenges, worries, etc. are. Think of it this way - when you present your quarterly report you are providing them the talking points they will take back to their stakeholders. That can help to guide what does, or doesn't, matter when you are communicating what's going on.
You mentioned simply sticking to the talking points and enduring - that's certainly part of it. What I think some of the best advisors do is help provide the client a roadmap for not just what's happened (as it's usually already done by the time you tell them) but how they are being positioned for what is coming next. That doesn't mean promise outsized returns or that everything is going to be ok - but simply saying that while equity markets returns have performed poorly we have made a few asset allocation adjustments, de-risked the portfolio and that even with a sideways market the rest of the year the portfolio is well positioned to meet the spending objectives. We have also put manager X and manager Y on our watch list for a more thorough evaluation and will provide further analysis or manager changes at the next meeting. Just an off the cuff made up example, but one way to think about how to help manage expectations vs. simply a 'don't worry, look at the long term returns, it's all good'.
For context most of my comments and bias is towards firms who are the advisor vs. simply a manager within the portfolio - that's a different ball game. If you are, say, running a growth strategy allocation within the portfolio - your best bet probably is curling up into a ball and pointing at the 5 or 10 year number. Kidding - but trying to make my point that in some cases, the best you can do is simply say 'look - this is the strategy you hired us to manage. Our long term returns have been strong, we continue to run our process to identify high growth companies that we feel are positioned to perform well over the next 5 years and are optimistic that over the next 12 to 18 months... blah blah'.
Anyway - I'm not sure this is helpful to you, but a few thoughts.
The roadmap is key! That's all about your process. Communicating your process up front is key and can always be brought back to the conversation.
Do you have the kind of rapport with that client or any other client where you can frankly tell them that they're being erratic and don't need to worry about short term fluctuations? Or do you need to keep it professional and use all the big finance buzz words?
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