When British Olympic rowers Heather Stanning and Helen Glover won a gold medal in the London games, they remarked that it was as if they had their coach alongside them in their boat. Great financial advisors should be like that too.
For a financial advisor seeking to maximise the chances of their clients reaching their goals, it’s the psychological aspect – being in their clients’ corner – that is often most overlooked.
Take portfolio rebalancing as an example. In bull markets, clients are naturally going to feel cocky. “Risk? No problem!” they might say. In that case, the advisor’s role is to rein in the client’s exuberance. “It’s been a good run,” they should say. “It might be time to bank some gains and rebalance.”
Likewise in difficult markets, as we have been seeing, the clients’ natural inclination will be to say “get me out of here. I can’t stand it anymore.” In this case, the advisor needs to remind the client that excessive risk-aversion comes at a cost. “You’ve drifted from the original goal,” they should say. “This is the time, when prices are low, to rebalance.”
The point of this is that just like an Olympic coach, the advisor’s role is not to always to make the client feel perfectly comfortable. Indeed, sometimes they have to challenge outright the comfort-seeking instincts of the client to go with the herd.
This doesn’t mean bullying the client. It means encouraging them to take ownership of their own decisions -to recognise how they are feeling, while pointing out the potential consequences of acting on those emotions.
Of course, this rebalancing challenge is made easier if expectations were set very early on in the piece. “Remember, we had this discussion?” the advisor might say. “How did you feel then?” The client will remember the decision they made at the beginning. “So what has changed since then with you?” the advisor prompts. “Well, nothing really,” the client might say. “It’s just that markets are scarier now.”
And this is when the advisor puts on the coach’s hat and challenges the client to reflect on what they might do to their financial future if they shifted their asset allocation every time the market changed. We have touched on the effects of attempting market timing in previous blogs. The intention here is to bring the client back to their original intention and reinforce the belief you instilled in them at the start that they can reach their goals. But they can do that only if they focus on those factors within their control.
So this process is about setting expectations, instilling belief, reinforcing those beliefs in good times and rough times, keeping the focus on the end goal and giving the client full ownership of the decisions they make.
Now the coach is not inside the boat with the client. Ultimately we all row our own boat. But for the client, it must feel like the advisor is there with them in good weather and bad.
We’ve seen that this is how they win gold medals at the Olympics. And it’s how ordinary people generate a secure financial future. At the end of the day, good coaches often make the difference.
If you need a new coach we would be happy to get you in shape.