If you have been in the investment industry longer than 5 minutes you have come to realize that investors, i.e. your clients are not rational beings. When times are good, they want it all and then some. When times are bad, they forget what they told you during the good times, and suddenly expect you to have read their mind and taken a different approach.
What I have come to realize in my nearly three decades of working in the investment industry is that clients only want one thing: They want to know and believe that they are on the path to get them where they want to be financially.
Notice I said to believe. Along the way, there will be things that shake their belief. The greatest skill you can learn and the greatest value you can deliver as a financial professional is keeping your clients on their path and from sabotaging their success with harmful human behavior.
Focus on using a predictable process to manage an unpredictable future.
We cannot predict what the financial markets will do. The future is uncertain. We do however have control over the processes and systems we use to manage our client portfolios.
Consider the traditional approach that 99% of financial advisors take. “Mr. & Mrs. Jones, I want you to buy XYZ Product because…blah…blah blah”. This conversation is product-focused. Discussed are past returns and product features.
This approach puts you at an immediate disadvantage because (a) you have no control over the markets, (b) you have no control over how a given product will perform, and (c) the whole process leaves a great deal to chance.
Financial plans should not be left to chance. Chance equates to gambling.
By being product focused, you sound like every other financial advisor. You become lost in the noise. A product is simply a means to an end rather than the end itself.
Understand the key emotions that drive most investors.
There are two emotional needs of all clients. First, clients do not like losses. Large losses are damaging both psychologically as well as mathematically to the success of a financial plan. Large losses (>20%) should be avoided. Many clients may jump ship after taking large losses and there will be no amount of convincing you can do to get them to ride the same ship again.
The second emotion of clients is the fear of missing out (FOMO). Clients want to know they are on target. They need to believe the path they are on is taking them there. They don’t want to miss out.
Focusing on a product alone misses these emotional needs. It does not connect to the emotional side of the brain. Remember that with any type of purchase an emotional decision is made first. Logic (the side that product/feature presentations are geared to) only comes into play after the emotional decision to buy has been made.
What if instead of focusing on product, you focus on the process you use to connect to their two emotional needs?
What if you show a process about how investments are selected? How no matter what the market throws at us, your portfolio will automatically adapt? What if you discuss how during wealth accumulation periods, the process automatically selected the top performing investments and avoided the worst? What if you discuss a process designed to limit losses and become defensive during unfavorable market periods?
None of that discussion has anything to do with a product. But it does communicate a process to address the two key investor emotions you need to be focusing on.
By focusing on the process, it allows you to fill in the blank with the product, as long as that product follows the process you outlined.
Maybe it’s a separately managed account, an ETF, or another investment structure. But the structure, i.e. the product, is secondary. The focus should always be on the process…because that is THE ONLY thing you can control.
And that is why process trumps product and how successful financial professionals differentiate themselves.