Teaching Moments: Help Clients Shake the Emotional Hangovers

Sue BerginSue Bergin, President, S Bergin Communications

While the I-make-a-decision-and-forget-about-it approach might have worked for Harry S. Truman, it does not describe the vast majority of today’s investors.

According to our recent Brinker Barometer advisor survey[1], only 22% of advisors clients embrace Truman’s philosophy. The vast majority of clients suffer from emotional hangovers after periods of poor performance. They let the poor investment performance impact future decisions. Sometimes, it is for the better. In fact, 31% of clients made wiser decisions after learning from poor investment performance. Nearly half of the respondents, however, claimed that emotions cloud the investment decision following poor performance.

Bergin_LiveWithDecisions_7.30.14Another recent study, led by a London Business School, sheds light on how advisors can increase satisfaction by helping clients make peace with their decisions. According to the research, acts of closure can help prevent clients from ruminating over missed opportunities. To illustrate the point, researchers simply asked participants to choose a chocolate from a large selection. After the choice had been made, researchers put a transparent lid over the display for some participants but left the display open for others. Participants with the covered tray were more satisfied with their choices (6.30 vs. 4.78 on a 7 point scale) than people who did not have the selection covered after selecting their treat.

While the study was done with chocolate and not portfolio allocations, behavioral finance expert Dr. Daniel Crosby says that it can still provide useful insights on helping clients avoid what Vegas calls, “throwing good money after bad,” and psychology pundits refer to as the “sunk-cost fallacy.”

“Many clients are so averse to loss that they will follow a bad financial decision that resulted in a loss with one or more risky decisions aimed at recouping the money. If you detect that a client is letting emotional residue taint future decisions you should counsel them to consider the poor performance as a lesson learned. This will allow the client to grow from the experience rather than doubling the damage in a fit of excessive emotionality,” Crosby explains.

[1] Brinker Barometer survey, 1Q14. 275 respondents

The views expressed are those of Brinker Capital and are for informational purposes only.

Reach Out in Good Times and Bad

Sue BerginSue Bergin, President, S Bergin Communications

It’s no secret that clients like to hear from their advisors. In fact, failure to communicate is one of the top five reasons why clients become dissatisfied with their advisor. According to a Spectrum study, 40% of clients said they consider leaving when the advisor makes them do all the work (make all the calls).[1]

A recent study by Pershing, however, shows that advisors do make the calls—when they have bad news. Here are some of the key findings when it came to communication choices.

  • 58% of the advisors contacted clients during market downturns, yet only 39% reached out to discuss market gains.
  • 68% of advisors reached out to clients when personal investments declined, while only 53% initiated contact with the client in instances when personal investments increased in value.[2]

Bergin_Reach Out in Good Times and Bad_6.19.14How News is Delivered
The telephone is the most frequently used communication vehicle for both good and bad investment performance news. A quarter of the advisors surveyed used email and face-to-face meetings to communicate market losses, while 58% of the advisors picked up the phone. The only type of communication that happened more frequently in person than any other message was in the area of education. 52% of advisors said that they scheduled face-to-face meetings to educate clients while 48% did so over the telephone.

“No News is Good News” Applies Better to Weather than Client Relationships
Communication work is fundamentally about two things: trust and relationships. Good communication can strengthen relationships and deepen trust while poor communication can have the opposite effect. The “no news is good news” approach many advisors seem to take is problematic for a few reasons. It robs the advisor of the opportunity to score relationship-building points. It also increases the risk of clients feeling neglected. Finally, it makes it more difficult for the advisor to identify opportunities proactively because they become somewhat out-of-touch with what is happening in their clients’ lives.

[1] http://www.onwallstreet.com/gallery/ows/client-switching-advisor-top-five-reasons-2681390-1.html

[2] The Second Annual Study of Advisory Success: A New Age of Client Communications and Client Expectations, Pershing.

The views expressed are those of Brinker Capital and are for informational purposes only.

Bridging the Alternative Investment Information Gap

Sue BerginSue Bergin, President, S Bergin Communications

The groundswell of interest in alternative investments continues to build, creating a thirst for clear, comprehensive and client-facing educational materials.

According to Lipper, alternative mutual funds saw the biggest percentage growth of any fund group, with assets under management increasing 41% to $178.6 billion in 2013. A recent report by Goldman Sachs projects liquid alternatives are in the early stage of a growth trend that could produce $2 trillion in assets under management in the next 10 years. In order for this to happen, however, investors must gain a better understanding of how alternative investments work, how they function within a portfolio, and where potential benefits and risks could occur.[1]

EducateAlternative investment strategies are a separate beast than the traditional methods of investing and traditional asset classes that most investors are familiar with. From divergent performance objectives, to the use of leverage, correlation to markets, liquidity requirements and fees, a fair amount about alternatives is different from traditional investments. Understandably, investors have many questions before they can decide whether to and how much of their portfolio to dedicate to alternative investments.

The task of educating investors about alternatives is falling largely on the shoulder of the advisory community. Well over half (60%) of the high-net-worth investors recently surveyed by MainStay Investments, indicated financial advisors as the top resource for alternative investment ideas. Trailing advisors was internet-based research (41%), research papers and reports (35%), and financial service companies (30%).[2]

Historically, advisors have shied away from recommending alternative investment strategies because they are too difficult to explain. The conundrum they now face is that 70% of those advisors surveyed also acknowledge the need to use new portfolio strategies to manage volatility and still seek positive.[3]

Bridge the Education GapIt’s important that advisors start to value the use of alternatives and find ways to bridge the information gap for investors. The good news is that investors have tipped their hands in terms of what they really want to know. According to the MainStay survey, clients want more information in the following areas:

 

  • Explaining the risks associated with alternative investments (73%)
  • Learning about how alternatives work (71%)
  • Finding out who manages the investments (54%)
  • Charting how alternatives affect returns (46%)

[1] http://www.imca.org/pages/Fundamentals-Alternative-Investments-Certificate

 [2] “HNW Investors Turn to Advisors For Alternative Investment Guidance,” InsuranceNewsNet, April 3, 2014.

[3]Few advisers recommend alternative investments: Respondents to a Natixis survey said that they stick to strategies that can be explained to clients more easily,” InvestmentNews, October 24, 2013

The views expressed are those of Brinker Capital and are for informational purposes only.

Implementing Technology

Sue BerginSue Bergin, President, S Bergin Communications

You don’t necessarily need the most cutting-edge technology to get to the top of your game. According to a recent study, you can start by leveraging the technology you already have.

Fidelity Institutional Wealth Services’ 2013 RIA Benchmarking Study reveals that high-performing firms—those in the top quartile for growth, profitability and productivity—focused on smart technology and adoption, not getting the latest and greatest. These high-performing firms focus on optimizing their technology in three areas: portfolio management, service, and client reporting.

Here are ten steps you can take to make sure you get the most from your technology.

  1. Make adoption a priority. Commit putting in the time and effort to learn how best to maximize all of the system’s features. If you can’t do it yourself, make someone else in your office accountable.
  2. Plan. Learning a new software program is like learning a new language. It’s hard to know where to start. Your technology provider should be able to give you an implementation guide to show you the steps to follow, and milestones to hit.
  3. Set aside time. If you don’t carve out time on your schedule, it isn’t going to happen.
  4. Network. There are relatively few programs out there that haven’t already been tried and tested by others in similar positions as yours. Talk to everyone you know who has gone through the implementation process and find out what they did and what they wished they had done better.
  5. Gather resources. Request an inventory of the training your technology provider makes available. Once you know what they have for support materials, you can choose the format that best matches your learning style.
  6. Optimize Your TechnologyGet names and numbers. You need to have key information handy in a few different areas. Know the software name, version number, and license holder so that when you call or go online for help you can be sure you are asking about the right program. Also know the names and numbers of customer support persons at your technology provider.
  7. Troll the internet. Use social media find online user groups or other social media sites that could provide helpful implementation hints. For example, there may be a LinkedIn User Group already established for the purposes of optimizing your software.
  8. Monitor progress. Perform periodic self-checks to monitor your progress towards the goals set in your implementation plan.
  9. Celebrate incremental success. Even if you haven’t learned everything there is to know, make note of how the technology improves your efficiency. Success is a powerful motivator and will prompt you to plow through your learning curve.
  10. Provide feedback. Software engineers constantly strive to innovate. If there is something you don’t like about your program or would like to see handled differently, let them know. You may just have a function named after you in the next version!

The views expressed are those of Brinker Capital and are for informational purposes only.

Why Some Fizzle, While Others Go Viral

Sue BerginSue Bergin, President, S Bergin Communications

Have you ever wondered why a silly email gets passed around the office, yet you can’t get a client to forward an interesting article you wrote to a colleague? Does it frustrate you that sports fails get millions of views, yet you’ve only had two people view your LinkedIn profile in the last 20 days? Ever wonder why your tweets don’t get favored, shared or retweeted?

The New Yorker’s recent article, “The Six Things That Make Stories Go Viral Will Amaze, and Maybe Infuriate You,” takes a stab at solving these mysteries.

The article, which cites studies conducted by two Wharton professors, reveals the common characteristics of widely shared stories. These stories or messages typically evoke an emotion from the reader, with happy pieces faring better than sad. They also create a social currency and make the viewer feel “in the know.”

Shareable stories also typically have memory-inducing triggers. They are easy to pass along because they can be found and retrieved.

Gone ViralThe final predictor of whether a story will go viral is the quality of the content itself. The Holderness family rivaled Santa himself in spreading holiday greetings because their “Christmas Jammies” YouTube video was so well done. Otherwise, over 13 million people would not have invested the 218 seconds to watch.

So before you make your next LinkedIn post or tweet something on Twitter, make sure the content you are providing is relatable to your followers and will elicit a response. Then you can begin the journey of becoming a social media influencer and setting yourself a part from the crowd.