by Ryan W. Smith
Talking about money and personal finances is still considered distasteful in American culture at-large. Capitalism is the foundation of our economy and “money makes the world go ‘round,” but many people still feel a certain amount hesitation discussing their finances, even with professionals paid to do just that.
There is a lot of evidence showing that, regarding conversations about personal finance, people who don’t have a lot of money often feel shame and fear that they will be judged a failure, but those who have a lot of money tend to worry that others will try to take advantage of them. Several studies have shown that parents would rather talk to their children about sex than about money and finances. The American Psychological Association’s yearly survey shows the same result every year: that the number one stressor for three-fourths of U.S. adults is money.
How do financial advisors overcome these factors when finding new clients? Add to these fears the fact that financial education is so lacking that only five states currently have any graduation requirements regarding financial classes and it is no wonder that over 70% of the respondents to a 2015 Harris Poll felt that speaking to a financial advisor was scary. Nearly half felt that even talking to a financial advisor would cost them a significant amount of money. Most worrisome might be the 41% of respondents who felt that financial advisors would not be able assist them with their finances.
Slow but Steady
The primary, and often easiest, way to reduce the anxiety in potential clients, as well as existing account holders, is to develop a relationship with them on a personal level. It is important to take the time to reduce anxiety before speaking about finances.
Once finances do enter the conversation, it is important to keep the slow and steady rhythm. Establishing financial trust is a process, one that can be started with a small amount in a single account before asking a client to move all of their accounts over. Proving value-add with that small amount, explaining investment strategy in detail and making the client feel as big a part of the process as possible are all ways to enhance client relationships and reduce apprehension.
Seasoned financial advisors will often ask two specific questions for new clients moving on from another advisor. The first is asking what their previous advisor did that helped them to be comfortable and the second is asking the client what they would have changed from that previous experience. The answers will give the advisor an outline on establishing and then continuing a positive relationship with that client.
Second verse, same as the first
Transparency regarding fees is also an area where an advisor can reduce anxiety. Being clear, up front and detailed about fees and compensation will help clients feel more at ease. If they view fees as being reasonable their other fears will also begin to dissipate.
During volatile market periods, it is important to remain in contact with all clients, including and perhaps especially, longer-term clients. Being visible and reassuring while making sure that clients continue to focus on long-term goals are as important for existing clients as they are for new clients. Fear comes in all shapes and sizes.
Everyone does it
There is a procedure deployed by psychologists called “normalizing” that many in the financial industry feel helps put especially fearful clients at ease. Letting clients know that many other clients have made bad decisions at some point or reasserting that many other people have been in similar situations are ways for advisors to help clients realize their problems are not so unique and can be resolved.
At some point, many seasoned advisors say, a successful advisor will slowly transition from being the expert on finance in general to being more inquisitive regarding the specific situations of each client. However, this method can only be successful provided a good relationship has already been constructed, that the client feels comfortable with the advisor and that the client’s basic goals and aspirations are already well-known and established as part of that relationship.
But no one should do these things
Alleviating fear in new, potential and existing clients is a multi-faceted, continual process. Consistency is key to building strong relationships. But inevitably, even with clients who have been with an advisor for an extended period, there are certain things that will almost certainly cause fear.
Advisors who get lost in technical details like alpha and standard deviation will almost always scare clients, many seasoned advisors say. Clients primarily want to know that their advisors understand their particular problems and situation. If clients ask for specific data, provide it, but most people do not want to feel judged for their lack of financial expertise. Additionally, most seasoned advisors say to avoid industry jargon if at all possible.
Analytical reports, with graphs and charts clearly marked and defined, have assisted many advisors in breaking through client fears, once trust is established. AdvisoryWorld has taken this approach regarding its Analytical reports and Client Proposals. Using information in a concisely presented fashion that is easily explained by an advisor, back-tested data and forward-looking information can provide context regarding client-advisor discussions on investment goals and aspirations.
While it is important, at times, to calm clients during volatile market periods by letting them know that the firm is financially solid and has easily survived turbulent times before, as part of initial client contact it can be counterproductive. Advisors should concentrate on client problems and client aspirations, not a hard-sell on the advisor and the firm.
Finally, there is no need for a client to bring a lot of information to an initial meeting. Nothing more than their current statement from existing accounts, if applicable. If the initial meeting is more about the client’s goals and aspirations and less about money and fees, an advisor will seem more approachable, which will do a great deal to allay fear anxiety in many clients.