"If you're among those who are scared to call your clients, you can take comfort in one fact—a lot of other financial advisors are, too."

Finding Your Center

By John Bowen

I spent a great deal of the second half of 2002 traveling around the country speaking to various groups of financial advisors. This opportunity to talk with so many different advisors gave me a tremendous perspective on how they are dealing with the volatility in the market that has been going on for nearly three years now.

Reprinted from:

I came away with one overriding impression: Advisors are probably more anxious now about the investing environment than at any other time in the last three years. Just when at least some were getting used to the market being beaten up, third-quarter returns delivered a sucker punch that knocked the wind out of even successful advisors.

This really hit home for me at one speech I gave in which I asked advisors, "How many of you are now comfortable calling your clients?" Not a single hand in the audience went up. I was shocked—not one advisor wanted to contact his or her clients!

If you're among those who are scared to call your clients, you can take comfort in one fact—a lot of other financial advisors out there are, too. This means that if you choose to take a proactive stance during this turbulent market, reaching out to your clients with the advice and reassurance they need, the opportunities for you to attract both new clients and new assets are huge.

Research done last year by my firm, CEG Worldwide, found that advisors fall into two categories: client-centered (13.8 percent) and investment-centered (86.2 percent). This study, which was conducted well into the current market downturn, pinpointed the characteristics that set these two groups apart and revealed a tremendous difference in the level of success they enjoy during down markets.

The best way to understand the differences between client-centered and investment-centered advisors is to look at their priorities and how they spend their time (see chart on page 91). The investment-centered advisors are focused on developing investment strategies, structuring portfolios, analyzing risk, and ensuring they have the best investment programs for clients. But they often emphasize the investment process at the expense of clients and prospects.

The client-centered advisors, in contrast, are strongly focused on communicating with their clients. This is not to say that they are not skilled on the investment side, but they don't let it take priority over their client relationships. The differences carry over to what each group thinks market downturns hold for them in terms of new business. While an overwhelming majority (96.4 percent) of client-centered advisors think that downturns are a good time to get new clients, just a handful (0.6 percent) of the investment-centered advisors agree. At the same time, large numbers of client-centered advisors (85.5 percent) see it as a good environment for getting additional assets from current clients, a view shared by only 3.6 percent of their investment-centered peers.

The optimism of these client-centered advisors is solidly grounded in their experience through this downturn. In spite of the market challenges, they've enjoyed remarkably higher success than have investment-centered advisors. Specifically, in the six-month period leading up to our study, client-centered advisors on average attracted 6.8 new clients, each bringing them $269,000 in assets. Existing clients also brought them new business, with 7.3 clients delivering $64,000 each in additional assets. The math tells us that these investment-centered advisors brought in nearly $2.3 million each in new assets during six months of a very difficult market.

On the other hand, the experience of the investment-centered advisors was dreary. Averaging only 1.3 new clients with $51,000 in assets each and receiving additional assets of just $13,000 from less than one existing client on average, these advisors brought in a dismal $76,700.

The bottom line? By being there for their clients during a rough market, the client-centered advisors brought in 30 times more assets than advisors who were afraid to call.

If you are already a client-centered advisor, both you and your clients will be better off for your efforts. But if you are among the many advisors who are simply holding on, waiting for the market to recover, and hoping that clients won't call, now is the time to change your course.

To do so, I recommend that you implement a systematic communication process designed to re-establish your connection with each client and build a foundation for growing the relationship going forward. There are four key steps to this process.

1. Set expectations. Chances are that most (or all) of your clients are normal investors who are getting caught up in the emotion of these times. With the gains of the late 1990s vaporizing in short order, your clients are seriously concerned about their financial futures. Many are questioning what they have done with you, and some are seriously considering making drastic changes, often putting their financial well being at risk.

It's your job to help your clients manage their expectations, ensuring that they understand both the long- and short-term tendencies of the market. For instance, if your clients understand that they must have a minimum five-year horizon if they invest in equities, they will be less likely to panic during times when the market swoons. You should also impress on your clients the importance of the overall financial planning process and how all the components fit together to help them reach their financial goals. Remind them long-term planning will ensure they are successful and won't fall into self-destructive habits.

2. Renew the relationship constantly. Your clients need you now more than they have in a long time. This is a great time for you to sit down with them and revisit their portfolios. Your reassurances that their financial plans are on the right track will give them confidence and security. If you are not there to guide your clients, you can be sure that another advisor will be happy to take over the job for you.

You need to be genuinely concerned with your clients' well being and to make time to do some hand-holding when they need it. You should also look at any structural changes you need to make in your firm in order to be able to provide consistently top-notch service and responsiveness to your clients, in both up markets and down.

3. Ask for additional assets. As you help your clients cope with market volatility, remember to ask for additional assets. Most affluent clients have multiple financial providers. Many of your clients' other financial providers will fail to be proactive; all too many advisors bury their heads in the sand, hoping that the market will turn around and that they will have good news to report when they finally do call their clients. In addition, many of your clients may have self-directed accounts with discount brokers. These firms are offering little support or advice to help them through these times.

In contrast, you will be one of the few who are actually there when they need you. By focusing on them and acting immediately, you will not only help your clients get through this tough period, you will receive significant additional assets in return.

4. Show your gratitude. Be sure to thank your clients for choosing you as their financial advisor. Let them know often how much you appreciate the opportunity to serve them and help them reach their financial goals. Remind them that there will be many obstacles (like the current market) along the way, but that you are committed to being by their side.

Bull market or bear, your key to success as a financial advisor comes down to just one thing—your clients. They are counting on you as never before. By taking responsibility for your success, you will do right by your clients—and do well for your business.