To build your business, you need to follow a disciplined approach in managing your practice, gathering assets and positioning clients for a long term success.
A report by Wells Fargo Advantage Funds, a US based AMC, throws light on the three pillars that you can use to strengthen the foundation of your practice and build your strong base while communicating with clients.
Identify client mind-sets
Many investors struggle with decision-making and as a result becoming ineffective investors. For example, investors who stay on the side-lines in cash can reduce their chances of meeting retirement goals if they lack exposure to equities, which are needed for growth and protection against inflation.
Identify which triggers your clients react to and manage those client mind-sets to spur them to take action and potentially achieve better long-term outcomes.
Here are the five different types of client mind-sets.
|
Client mind-set |
What you will hear |
What you can do |
|
Fixated on the past |
“The downturn in 2008 really hurt. I don’t want to go through that again.” |
Refocus clients on a realistic range of outcomes, not just the worst-case scenario. This preparation may boost the odds of them sticking to their plan. |
|
Paralyzed by uncertainty |
“I want to hold where I am. I feel OK not making any moves right now.” |
Agree upon predetermined triggers. This makes rebalancing portfolios or adding to positions feel more like an automated action than a decision. |
|
Resistant to change |
“But I always got good dividend and interest income before.” |
Use a smaller bucket of money to test the waters. This toe-dipping familiarizes clients with changing market conditions on a smaller scale. |
|
Prone to overreacting |
“That 2008 downturn was scary. That’s it for me. I’m done with investing.” |
Show both sides of the picture: run-ups as well as declines. This reminds overreacting clients that they are missing both the pain and the pleasure. |
|
Attached to cash |
“I did make a decision. I decided to stay in cash so I won’t lose money.” |
Talk about real versus nominal returns. This illustrates that they need stocks, not cash, to grow and outpace inflation during retirement. |
Turn risk into potential opportunity
Managing risk is a core part of a sound investment strategy. Managing risk starts long before you start to analyse asset correlations and standard deviations of performance. At a foundational level, managing risk for clients can mean curbing those short-term instincts that threaten to derail their long-term outcomes.
Talk about risk with clients to help them understand that the biggest risk to meeting their long-term goals could come from missing opportunities. In every market cycle, some clients suffer from decision paralysis, overreaction, and cash hoarding. You can help by bringing risk to the forefront of client discussions.
Know what clients truly own
When you first begin working with a client, you probably ask questions to uncover their assets at other providers and identify any potential concentrations and overlaps in their holdings. Then, you take action to diversify the portfolio appropriately. Know what your clients truly own and probe into their external holdings and the holdings within their investments to help them adequately diversify their portfolios.
Reproduced verbatim based on whitepaper ‘Four pillars for your practice.’
Click here to view the report.
