Teaching Moments: Help Clients Shake the Emotional Hangovers

Sue 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.

Another 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 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]

How 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 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]

Alternative 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]

It’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 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. Get 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 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.

The 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.

Retirement Planning: Beware of the Boomerang

Sue Bergin

Unexpected events wreak havoc on many retirees’ portfolios.  According to a recent study, unexpected life events cost retirees on average $117,000. [1]  While caring for an adult child falls in the “unexpected events” category, recent trends suggest it is becoming a commonplace scenario.

The number of young adults, ages 18 to 31, living with their parent’s increased four percentage points from 2007 to 2012.  Now, over one-third (36%) of the young adults in that age category live with their parents.  Many of these adult children have children of their own, adding layers of both complexity and expense.  Pew Research Center attributes the multigenerational dynamic to declining employment, underemployment, rising college enrollment and declining marriage rates.[2]

In a separate survey, Securian Financial Group found that only 10% of the adult children living with their parents contribute to the household finances (e.g., pay rent).[3]  The Pew study reported that 22% of adult children still received an allowance from parents and 80% of the adult children living at home said they did not have enough money to live the life they wanted. Conversely, only 55% of their independent-living counterparts had the same response.

The boomerang-child pattern is nothing new.  It has surfaced during other economic downturns.  However, experts suggest that there may be some generational dynamics at play associated with this current wave of boomerangs that make it different from others. Those dynamics include a pervasive entitlement mindset, inflated self-esteem, and bumpy on- and off-ramps to the labor force.

Bumpy on-ramps refer to the fact that college graduates are having a difficult time finding employment.  Bumpy off-ramps refer to delayed retirements and boomers having to work longer than originally planned for.

While the debate rages as to the merits of adult children returning to the roost, one point is irrefutable.  Boomerang children create a drag on the parents’ retirement.

It is natural to want to help your children, at any age.  The child, however, should know the risks that you, as parents, assume if you agree to the arrangement.  The child probably dwells on the relationship risk potential, but should also be aware of the financial and lifestyle risk impact.

If the new financial impact on the parent is left unsaid, it will go unnoticed.  This fact is supported by Securian’s survey of Millennials who live with their parents.  45% of the surveyed young adult demographic said that their living at home has not financial impact on their parents, and almost half of that group said they weren’t even sure of the impact.

Other interesting stats from Securian:

• Only 4% acknowledge their parents delayed retirement to accommodate the living arrangement
• 8% said their parents did not request cost-sharing
• Only 9% of the parents put a pre-determined end date or set conditions for how long the adult child could stay.

There may be tips and tools out there, but working face-to-face with a financial advisor can help add value.  It’s important to assess the financial risk associated with having an adult child come return to live in your home.  A skilled advisor can help project anticipated increases in living expenses as well as the impact on your retirement. This will help establish parameters, set expectations, deepen the child’s understanding of what is at stake for you, and foster open communications. And maybe even make it an enjoyable living situation for all!

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[1] http://money.cnn.com/2013/05/15/retirement/retirement-savings/index.html
[2] http://www.pewsocialtrends.org/2012/03/15/the-boomerang-generation/
[3] http://www.lifehealthpro.com/2013/11/13/few-millennials-paying-their-way

12 Holiday Card Musts

Sue Bergin, @smbergin

You probably covered holiday cards in Client Communication 101. The holidays provide an opportunity to show clients you are thinking of them, and appreciate the role they play in your life. It’s important not to approach this as a “bah-humbug” type of task

Even though it may be a tedious task to undertake during the year-end crush, holiday cards are an important marketing and brand-building tool.

Here are a dozen things to consider when selecting your card:

1. Display-worthy. Your holiday card is one of the most on-display items you’ll send to your client. After all, no matter how satisfying their investment performance, they won’t tape a recent statement to the wall. Yet, business owners hang the holiday cards in their lobbies. Company employees display them on their desks or in their cubicles. Retail clients put them along a mantelpiece, place them on bookshelves, and some even win a coveted spot on the refrigerator door. Keep the display aspect in mind when selecting your card. For example, horizontally-oriented cards tend to fall over more easily than their vertical counterparts. If it keeps falling down, it is a nuisance and will end up in the trash faster than a fruitcake.
2. New year, new card. Even if you have a stockpile of cards left from past years, fight the urge to use them. If you absolutely can’t resist, then only send last year’s card to new clients. Current clients just might remember, and reusing a card sends one of two messages: you are too cheap to buy new ones, or you are lazy.
3. Awareness. Unless you know for certain of the religious holidays your clients celebrate, stick with a “Happy Holidays” or “Season’s Greetings” message.
4. Quality. There are a tremendous number of low-cost, do-it-yourself options out there. Use them cautiously. Make sure the output reflects your professional standards.
5. Test the system. If you are using an automated system, make sure it works. Build enough time into your process so that you can generate test cards to make sure the process works (quality check addresses, salutations, signatures, postage, etc.).
6. Destination. In most instances, you’ll want to send the card to your clients’ homes. Exceptions can be made for centers of influence and corporate clients and contacts.
7. Old-school charms. Modern conveniences like electronic signatures and address labels hint of a mass-mailing campaign. They may seem impersonal. Take the time to hand sign each card. For bonus points, write a personal sentiment.
8. Respect the sanctity of the time. If your standard practice is to ask for referrals every time you communicate in writing with clients, consider taking a break on the holiday card. You don’t want to leave the impression that you’re simply trying to drum up business.
9. Timing. The later the card, the more competition it has for your clients’ attention and display space. To stand out, start early.
10. Spice it up. Anyone can pick up store-bought cards, or pull from the standard greetings in the online templates. The result is a forgettable and insincere greeting. Be creative and design something distinctive. Take the time to select a design and message that reflects your brand.
11. Be inclusive. Forget about selectivity. Dive deep into your CRM. You don’t want to be on the receiving end of a game of card tag whereby you scramble to get a card in the mail for someone who has sent one to you.
12. Get personal. This is an opportunity to connect with clients on a personal level. Give details about favorite holiday memories or the traditions you hold dear.

Will Advisors Get to The Promised Land?

Sue Bergin,@smbergin

The maturation of the baby-boomer generation turned into a bit of a “promised land” for advisors.  New products, services, specialties and strategies were devised better to serve this massive market.  Advisors, along with the rest of the financial services industry, eagerly waited the fees, commissions, and product sales that would naturally flow as boomers prepared for, and transitioned to, retirement.  Everyone was ready, but will those who were promised ever even reach the so-called promised land?

In an article (subscription required) published in Financial Planning, “Advisor Threat? Wave of New Online Services Incoming”, Charles Paikert reports the influx of venture capital and clients flocking to the online advisory space. Many of the services who have staked a claim on the promised land are getting clients before advisors even get in the door.  Financial Guard is an example of a service offered directly to individual investors/employees.  It provides advice and recommendations to employees on their 401(k) portfolios.

While these services are arguably tapping into a segmented market, it is important to note the increase in their popularity.  However great the rise, it does not diminish the experience of working directly with a financial advisor. Let’s take a look at some of the applications and services with a presence in the online world:

• SigFig, a mobile application that tracks, organizes, and makes recommendations on financial assets garnered $50 billion in assets managed in just nine months after the app launched.[1]
• In February 2013, online investment company Betterment had amassed $135 million in assets under management, investing on behalf of 30,000 users.[2]
• Online wealth management firm Personal Capital amassed $120 million in assets under management, 75% of which came in the first quarter of 2013.  The firm continues to add $20 million to its platform monthly.[3]
• Jemstep, which provides recommendations on retirement goals, has attracted 10,000 users and tracks approximately $2 billion in assets.  It has only been up and running since January 2013.

These new entrants are a prime example of what late British author and psychologist Havelock Ellis had to say about the promised land—It always lies on the other side of the wilderness.

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[1] TechCrunch, “Financial Planning App SigFig Crosses $50B in Assets Managed Though the Platform,” 1/14/13

[2] Pandodaily, “With 135 million in Assets Under Management Betterment Lures Two Key Hires Awa From Traditional Finance.”  2/12/13

[3] Pandodaily, “Wealth management isn’t for old farts anymore.  Personal Capital uses technology and design to spice up a boring topic.”  4/11/13

Social Media Strategies: Yield to Client Preferences

@SueBergin

Every investor has his or her unique communication and learning style.  Some prefer face-to-face meetings, while a quick text message will suffice for others.  Some investors are highly analytical and need to understand the data behind their investment philosophy while others take a “just give me the bottom line” approach.

Most successful advisors have become adept at assessing the communication and learning styles of their clients and adapting accordingly.  When it comes to a social media strategy, advisors should use a similar approach.

According to the recent survey[1] sponsored by MassMutual and conducted by Brightwork Partners, “women are from Facebook, men are from LinkedIn,” various demographic groups are congregating around their social media channel of choice.  Consider these stats:

• 70% of women routinely use Facebook vs. 59% of men
• 57% of survey respondents over the age of 50 use Facebook
• 32% of men use LinkedIn, compared to 15% of women
• 17% of men versus 10% of women rely on Twitter as an information source
• 36% of LinkedIn users have household incomes that exceed $100,000
• 15% of LinkedIn users have household incomes of $50,000 or less
• Survey respondents in their 30s are 14% more likely to use social media for retirement and investment education than their older counterparts
• 80% of Pinterest’s 70 million users are women[2]

MassMutual’s study is the latest in a line of research that demonstrates the role social media can play in educating clients.  From a tactical perspective, it is helpful to note that a Tweet, Facebook post, LinkedIn message or Pinterest post will reach only the audience following that channel.

From a practical standpoint, you may want to synchronize your social media messages.  So, for example, if you sync your Twitter and LinkedIn files, LinkedIn contacts will see your Twitter updates and vice versa.  Keep in mind that some content is more appropriate for certain channels over others.  For example, tweets can only accommodate 140 characters but Facebook posts may be more extensive. Pinterest is most appropriate for visual content, like the inspiring image below originally pinned by ForexRin.

In the end, social media is about listening and engaging with your clients.  Services like Hootsuite, Tweetdeck and GoGoStat can help monitor and track your social media engagement so that you will know which channels are most valuable to your practice.

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[1] Survey conducted online between February 18 and March 11, 2013. http://www.massmutual.com/aboutmassmutual/newscenter/pressreleases/articledisplay?mmcom_articleid=beb6e92894651410VgnVCM200000d37106aaRCRD

[2] http://expandedramblings.com/index.php/pinterest-stats/

Show and Tell: Five Points to Make with Prospects

@SueBergin

The best storytellers are the ones that have mastered the art of “show, don’t tell.” Their ghost stories, for example, have descriptions of settings and physical manifestations of emotions. Sentences like “it was a scary place,” serve only to punctuate what the reader or listener already concluded.

The same can be said of advisors. Telling someone that you can help them achieve their financial goals does not make nearly as big of an impact as when you show them how.

The following are five areas where it is important to show clients why you are the best choice.

Five Points to Make with Prospects:

1. How you will organize their financial lives. While most clients don’t come out and admit it, their financial lives are chaotic. They may not know how many assets they truly have and how they can put them all to work to increase purchasing power. The first step for advisors is to show clients the before and after. Explain to them what they currently have now versus what their potential growth may look like. Demonstrate how you will make them feel more in control of their financial lives. It could be something as simple as taking out your iPad and showing them the client portal of wealth management tools.
2. How you will help them make good investment decisions. The term “good investment decisions” is too opaque to resonate with clients. Instead, walk clients through the process used to create an Investment Policy Statement (IPS). Talk to the client about how an IPS helps to guide future decisions. In the recent Brinker Barometer, we learned that 72% of advisors use a written IPS to help clients make non-emotional investment decisions when the market is in flux. The IPS is tangible proof of a disciplined process that will benefit the client.
3. What you do to ensure that clients get the best advice and service possible. Marketing-darling phrases like independent, objective and unbiased, fall flat. Instead, describe the process that you go through to ensure that your recommendations are appropriate for the need you are trying to solve.
4. You have been there, done that. Your experience does not speak for itself. You have to give it a voice. If you just say, “I have been an advisor 22 years,” you miss the opportunity to highlight what you have seen throughout your career. It is more impressive to learn that you have helped others thrive in all market climates than to know that you’ve been at this for a while.
5. You appreciate their business. It’s easy to say “I value your business,” but to convey that message through action takes a concerted effort. Personal touches such as the just-checking-in phone calls, handwritten notes, and occasional invitations to social events let clients know that their business and their well-being matter to you.