1. Help clients overcome behavioral bias.
Clients may have behavioral bias that goes back many years and affects their spending and other financial decisions, Wood said. She noted that you can talk them through it and
help them find solutions
to overcome those biases.
She pointed to an example of a husband and wife who were on the same page with their finances on everything except when it came to spending money on Christmas gifts. The wife would spend much more than what was in their budget each year. The issue was discussed with them and, it turned out, the wife only received gifts for Christmas when growing up, so she continued placing tremendous importance on Christmas gift-giving when she was older. They came to a compromise that made both clients happy while sticking to their budget.
2. Urge clients to keep important financial goals front of mind. No matter what may happen during the course of the year, it is important that advisors urge their clients to keep the financial goals they have front of mind. One way to do that is through visual reminders, Wood said.
She pointed to a client who put her child’s name and 529 college savings plan on every shopping list, so she wouldn’t forget that important goal. And when she went to buy certain products not on the list, she would put them back on the shelf before paying for them because she saw that reminder on her list, Wood noted.
3. Stress to clients the need to stick with their financial plans.
“The most important thing for a client is sticking with the plan” that an advisor helped them set up — not having the best investments because if you can’t stick with the plan, it won’t work, according to Rob Emrich, founder and managing partner of Acruence Capital in San Antonio, Texas.
Related: Nearly Half of Americans Want to Learn More About Investing: Survey
To help clients, you need to first know what the most important things are for them. Using the Monte Carlo financial planning strategy helps clients more easily understand the likelihood of achieving their goals through their specific plans, he said.
4. Make sure to ease their minds over financial stress. More than 70% of Americans now say finances are their largest source of stress, according to Heather R. Ettinger, managing partner at Fairport Wealth at Hightower, and founder and CEO of Luma Wealth Advisors.
Therefore, it is best to develop a realistic financial plan for clients, factoring in the money coming in and out, and run scenarios with them that show how they can still achieve their goals with some adjustments despite any setbacks — like if they lose a job due to the pandemic. This will “take the anxiety out,” she said.
5. Avoid too much jargon.
Ettinger also suggested avoiding the use of too much industry jargon with clients because it often confuses them, she said.
Also during the virtual roundtable, Matt Lloyd, chief investment strategist at Advisors Asset Management in Monument, Colorado, said: “The curiosity factor with ESG is off the chart” now among investors, and “that’s been building for some time.”
Although “we get a lot of interest”
among advisors and financial firms about environmental, social and governance investments
, he added, “they’ve been very slow to pull the trigger on it” in most cases. That will change as benchmarks get lower and more money flows into ESG investment options, he predicted.
Investors are continuing to experience high levels of emotion and anxiety as 2020 comes to a close, with the pandemic expected to continue for at least a few more months, job losses continuing, and a new president coming in January with plans that stand to impact investors, according to advisory and other wealth management firm executives with expertise in behavioral finance.
Erin Wood, senior vice president of financial planning at Carson Group, and the other executives, took up these themes Wednesday, during the virtual roundtable “Uncertainty, Psychology and the Markets: How to Manage Expectations and Client Portfolios Heading into 2021,” moderated by Dana D’Auria, co-chief investment officer at Envestnet.
They provided five tips that advisors can use to help their worried clients stick to their financial plans: