Investing in Uncertain Times

A worldwide pandemic. Natural disasters. Shaky economies.

Jakub Kriz, 2017

Recent events are contributing to many of us feeling uncertain about our jobs, our safety, our physical health and our futures. As a financial advisor, your clients may be highly stressed, phoning you at all times of the day and night to ask for your advice. Should they be selling some or all of their investment portfolio?

During what feel like increasingly uncertain times, we need to help our clients make sound investment decisions. Are you going to be cool, calm and collected? Or are you going to fan the flames and make things even worse for them?

It may sound obvious but in the midst of crises like these, you need to call upon all your skills and competencies and remain alert and adaptable. Here are two points to consider:

• Take stock now. Spend time becoming extremely well-informed on the events that are causing your clients’ stress. If you gloss over these because you haven’t educated yourself on what has happened (and what the current status is), you’ll appear dismissive and might come across as not being empathetic enough.

• Look back. Turn back the clock to a calmer time before the current crisis. What sort of financial plan was created? Did it take into account that this is an uncertain world and that there would most likely be multiple crises along the way?

Our experience shows us that a goals-based philosophy, executed with an appropriate advice process, is the best way of ensuring that crises like these can be weathered. It’s also the best approach to ensure that clients behave in a calm and rational way in respect to their investments during these times.

Here are what we believe are the five important elements of a world-class goals-based advice process:

1. A comprehensive ‘discovery process’ to identify and prioritise all of your client’s hopes, aspirations and concerns.

2. A detailed and deliberate exercise to transform your client’s life priorities into financial goals, making sure that each one is SMART (specific, measurable, attainable, realistic and time-bound).

3. The co-creation by advisor and client of a jargon-free financial plan – ideally one that is very visual. It should not be overly long or complicated, and both parties should be able to refer to it frequently.

4. A specific investment portfolio or risk solution for each financial goal, clearly labelled and using words that have a personal connection to the client.

5. An easy and transparent way of monitoring the performance of each goal, together with a disciplined process for taking action to keep on track.

We have found that following the 5-step process mentioned above delivers these key benefits for clients:

• They have more confidence in strategies that are explicitly aligned with their own objectives.

• They’re more likely to persist with their commitments to invest on an ongoing basis (rather than succumb to the temptation of consumption) if there is a definite emotional connection to each savings goal.

• They have a deeper understanding of the risk because it is expressed in understandable terms, so they better understand the risk of failing to achieve specific goals.

• They’re better prepared for bear markets because they understand more deeply the journeys they’re on. As a result, they are more likely to maintain perspective and discipline through the cycle.

International evidence shows that clients using goals-based planning are less likely to make dramatic changes to their portfolio when there is market volatility. A few years ago, leading international research provider CEB Gartner released research showing that 75% of those investors who had a clear goal in place did not make an irrational – and ultimately costly – decision to sell out at the wrong time. This compares with those without a goals-based approach, only 20% of whom avoided making hasty or irrational decisions.

Running for the hills in the face of bad news has been a common emotional trap for investors for centuries. When the dust settles, they quickly realise that their decisions were made in haste and if they had stuck to their original plans, they would have been much better off in the long run.

What experience have you had with clients when their newsfeed is distressing, such as during the Zuma days and again in the recent riots? Were you able to reassure your clients and keep them on track with their financial goals?

If you’d like to move from “traditional advice” to goals-based thinking, we’ve developed an app that starts these important conversations and helps you manage a goals-based advice process simply and effectively with your clients. Contact us to find out more or set up a demo.