A Natixis global survey of financial advisors shows that advisors see both market forces and client behaviour as potential barriers to their success. Eight in ten advisors believe their ability to keep clients from making emotional decisions to be a critical success factor. Over 2,400 advisors from 14 countries participated in the survey.
These challenges can translate into a powerful opportunity for those financial advisors who are equipped with the right skills to show just how much of a difference they make in helping to deliver a better quality financial life for clients. While some advisors will require enhancing soft skills in the areas of client management and education, others will require new technical skills in the areas of investment management.
Money and investing are among the most emotionally charged issues for individuals and families. Where an investment professional’s objective view might see figures on a statement, clients may see assets through a more personal lens: their investments represent lifetime achievements, personal empowerment and the legacy they will leave to their family.
As a result of these associations, sudden and severe drops in value often lead to equally severe, emotionally driven decisions. Advisors see this response as a threat to both their business and the financial success of their clients.
In fact, 83% of advisors surveyed globally believe that preventing clients from making emotional decisions is important to their business success. Unfortunately, their clients don’t think so - another survey of individual investors shows that the investors do not see the connection between emotional decision making and achieving financial goals.
One reason behind this irrational view may be that individuals are lacking the grounding needed to make sound investment decisions. Among the investors surveyed, 57% said they have no financial goals and 67% said they had no financial plan. When it comes to investing, 77% said they go on instinct alone when making financial decisions.
According to advisors, each of these factors ranks among the top five mistakes investors can make. Independently, each represents a significant problem for investors. This can leave clients without clear direction on how to handle the ups and downs that are an inevitable part of the investment experience.
The survey shows that here are the top five mistakes advisors believe investors make:
- Making emotional decisions
- Short-term focus
- No financial plan in place
- No clear goals
- Not staying in the course
Emotion is a two-sided coin
Emotion can be a powerful force on the upside too. The survey show that even in regions where we find the highest risk tolerance, advisors are acutely aware of the sway that emotions can hold on clients.
Perhaps what is most important to advisors in managing emotions is getting to know clients more completely. More than nine in ten advisors in the survey group said getting a complete view on client goals and risks is the most important factor in their own business success.
In short, as client therapists, you will need to lead clients through periods of uncertainty such as the recent shock waves from China that has been felt in markets around the world. It starts by getting clients focused on their goals and returning to their financial plan – these are the touchstones advisors can use to talk clients through difficult times.
