You’ve seen the cartoon: The caption below a cheering crowd reads: “Who wants change?” In the second picture, the caption below a silent crowd reads: “Who wants to change?” Many investors feel they need to do something, just not now. You are making recommendations in your prospect’s best interests. How can you encourage them to take action on your timetable?
Strategy #1: No Decision is a Decision
Your prospect currently owns equities and fixed income in their portfolio. For example, let’s suppose they are 90% in long term bonds and 10% in equities. Consistent with their risk profile, you are suggesting an allocation of 70% equities and 30% short and medium term bonds. The prospect wants to think about it. “I don’t want to do anything right now. I’m not ready to make a decision.”The advisor explains “No decision is a decision.” Their recommendations of 70% in stock and 30% in shorter term bonds implies the stock market is a good place to be and interest rates may be rising over time.Sitting tight with their current holdings support a different set of assumptions. Long term bonds imply interest rates will stay stable or decline. A 10% weighting in equities implies they feel the stock market isn’t the place to be.“Which set of assumptions do they believe?” Can they explain their reasons for why they feel sitting tight is the correct strategy? I saw a sign on the jump seat of a London taxi: “People who take no risks are already taking one.”
Strategy #2: Buy into Each Other’s Interests
When advisors present their recommendations to prospects, it often involves selling everything and replacing their holdings with new securities or new money managers. For many prospects, that’s a giant step into the unknown.Start by listening to your prospects interests, especially current portfolio holdings they really like. Review their current holdings, looking for positions they already own that are consistent with the recommendations you are likely to make.At the next meeting, present your recommendations, incorporating the prospect’s current holdings you’ve identified as being a good fit. Tell them why they are good securities. Compliment them for having chosen them. “Not only will we be keeping them, I would like to add to your position.”Your hope is the client will agree with the other securities you want to buy, because they will be part of a new portfolio built around their core holding you recommended they keep.You are suggesting a lot of change, but the securities they currently own that you want to retain in the new portfolio, help to act as a security blanket.
Strategy #3 – You are Not Doing This for Yourself
You are meeting with a couple to review the financial plan you have developed and the recommendations you are presenting. Prospects sometimes solely focus on outperforming indices as the only path to making money. Are they neglecting risk as a factor in their decision making? Also, outperformance is often difficult to achieve because of built in management fees and sales charges.The advisor who explained this strategy would tell prospects: “The objective is not to outperform or just make money. The objective is to provide for your family and children.”It’s important both parties on the account are present. Often one is the primary decision maker. Not agreeing with your recommendations equates to not wanting to provide for their family and children. The advisor may pick up the spouse who isn’t the primary decision maker as an ally.The concept of using the “Family Index,” the rate of return you need to achieve your own goals as a means of performance measurement aligns well with this strategy.
Strategy #4 – Dollar Cost Averaging
Even on a hot day, many people don’t immediately jump into the swimming pool. They ease themselves in gradually.The advisor makes their recommendations. The client might like them, but they are reluctant to commit. They may feel the market is too high. They might feel its pulling back and going lower.The advisor explains dollar cost averaging as committing a portion of their money now, adding more later. If the market declines, they can average down. If the market rises, they have already established a position. The advisor uses mutual funds and professional money managers as a hypothetical example. When they establish a position, they buy thousands of shares. “Do you think they do it all at once?” No, they gradually assemble their position over time.The advisor suggests “We use the strategy utilized by large institutional investors when we build your portfolio. This strategy has two advantages. There’s probably an amount of money the prospect would be willing to commit as an initial investment. As they get comfortable, they add more. Also, people often work with a credentialed professional with a big firm behind them because they feel they will benefit from advice and strategies used by institutions and larger investors.All four strategies have a logic why they should work. They are finding common ground and getting the prospect involved in the decision making process.Related: Why Advisors Should Use Multiple Marketing Channels