Advisors have a tough. In an industry that touts price transparency, investors are drawn to cheaper alternatives like robo advisors and online trading. Statistics show the historical stock market annual return between 1973 and 2016 was 11.69%. (1) If it went in a straight line, life would be good. It doesn’t.
You’ve seen the articles showing the return the average equity/fixed income mutual fund investor gets over time. Forbes reported the 30 year average return ending in December 2013 was only 1.9% (2) Market declines present an opportunity for advisors to show their value.
Five Ways to Show Your Value
In the TV cult classic Lost in Space (1965) the robot often said “Danger, Will Robinson, Danger.” Put another way, the robot initiated contact with the human. They had a dialog. Sadly, most robo advisors don’t call clients and ask about their children before getting down to business.
1. Pick up the phone first. The market is having a bad day. Your client knows. It’s on the 6:00 PM news. They wonder how they are doing. More important, they wonder how they should react.
Rationale: Everyone wants to be an important client. They also want the feeling someone is watching their stuff or looking out for them. By calling, you are letting them know you are on top of the situation.
2. Have an explanation. Your client thanks you for calling. They wonder why the market is going crazy. Sometimes the cable TV financial channels aren’t much help. They want a simple answer. Avoid “More sellers than buyers.” It’s too simple. See what your firm is saying. Check the mainstream media websites. Finviz.com and Capital 1 have charts best described as heat maps. (3) (4). They let you know what’s driving market activity.
Rationale: Your client understands certain sectors or individual stocks are driving today’s move. This helps you explain the likely rationale.
The robot HAL 9000 was a major character in 2001, A Space Odyssey. (1968) On this deep space mission, HAL decides killing the crew will enable him to continue with the mission, (5) connecting with alien life discovered in space. HAL focused on the long term.
3. Focus on the long term. Unlike HAL, you aren’t going to kill your clients to make managing their money easier. You will explain those historic long term returns in the past came with short term volatility. You likely have a chart showing major world events and how the market got through it. (6)
Rationale: You have focused your client on their goals in the distant future, keeping their eye on the prize.
Star Wars brought us two more famous robots. C-3P0 and R2-D2. They are pretty smart. They have access to data. They follow instructions. They don’t initiate offering advice.
4. Have recommendations. Your client is wondering: “What should I do now.” You might consider persuading them to sit tight as victory. You should present concrete suggestions of things they can be buying with cash on the sidelines. Robots don’t initiate those conversations.
Rationale: Your client hangs up the phone thinking you are two steps ahead.
Colossus, The Forbin Project (1970) was one of the early AI themed movies. The American supercomputer discovers there’s a Russian version, asks to be connected and together, they dominate the world. (7)
5. They have friends. Robo advisors aren’t very good at asking to be connected, but human advisors do this pretty well. After completing the four above steps, you ask who they know that is dissatisfied with their financial advisory relationship or not getting this kind of attention from their advisor. They should know at least one other person. You ask them to introduce you.
Rationale: Your client’s conversation with their friend is easy. “Fred, I know you are invested in the market just like me. These ups and downs have been keeping me awake at night. Fortunately, I have a good financial advisor, Wilma. She puts things in perspective. She gets me focused on the long term. She even shows me opportunities other people may be missing. I think you would like her.”
Robo advisors bring many benefits. During periods of market volatility, human advisors can bring even more benefits.
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