How Financial Advisors Can Communicate Risk to Clients
April 14, 2020
Your clients don’t have the background knowledge that you do and occasionally may lean toward financial decisions that you don’t agree with. Maybe they’re considering the get rich quick scheme of the day, thinking about making a panicked withdrawal, or considering going all-in on real estate. You always have their best interest at heart, but it isn’t always easy to effectively communicate to them why their idea isn’t financially sound.
Financial Advisors help keep investors calm and on a trajectory toward their goals, even during tumultuous financial times. This often involves balancing what your client needs versus what they think they want. We’ve outlined five strategies to help you through these tough conversations.
1. Don’t Minimize the Request
The client-advisor relationship, like any relationship, can become strained if one person feels ignored. Always hear your client out. There’s a two-fold benefit: listening will help them verbalize their feelings and desires, and when they fully articulate their plan they may realize their folly on their own. Sometimes talking it out with a third party is all the person really needs.
2. Ask What’s Driving Their Decision
Did they hear about the guaranteed return on investment from a friend or coworker? Are they feeling pressured to clean out a portfolio to pay for a second home they can’t quite afford? Or are they simply scared of not reaching their financial goals? Knowing your client’s motivation is your key to handling the conversation in a way that speaks to their fears or wants.
3. Initiate Tough Conversations
Uncomfortable conversations are a reality of the financial planning industry. Discussions about risk capacity and tolerance should be had early and often. When clients come to you with an idea, be explicit in what this decision could mean, with anecdotes from your prior experience to back it up. Sharing other real experiences can help show your client that you are willing to explore new ideas but that you always recommend the course of action you believe will best serve their financial interest. A history of discussions about risk tolerance will give you some background to lean on by reminding them of their previously expressed desires.
4. Establish Your Role as an Educator
Your clients trust you as an expert. Often that means they want you to take the lead in making decisions — that’s why they work with you, after all. But situations like this allow you to arm your client with information that can help them understand how this investment choice could be a potential mistake – information that can continue to help them in the future. Explain your reasoning and encourage them to ask questions. Remember: Use common language your client understands; the last thing you want is to make them feel belittled.
5. Remember You Work for the Client
Be clear and respectful with your recommendations and your reservations. If your client is fixed in their opinion, you must carry out their wishes. Consider how you can accommodate their request and better educate them for the future.
When Trust Matters
Your relationship with your client is built on trust. And as a Farm Bureau Wealth Management Advisor, you’ll join our growing network of more than 1,700 agents with 540,000 clients who trust us with their livelihood every day. Learn more about the benefits of becoming a Farm Bureau Wealth Management Advisor.