For many financial advisors, keeping an open line of communication with clients is a key component of building trust, understanding the client’s values, and developing a meaningful plan to help them reach their financial goals. However, despite efforts to ensure all clients understand the ‘big picture’ of their comprehensive plans, some clients may be tempted by other financial professionals offering attractive investment returns and promising better portfolio performance. And when a client decides to pursue a relationship with a new financial professional for better returns, it can leave the advisor wondering what went wrong and how to prevent other clients from being lured away.
In our 114th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss ways for financial advisors to talk to clients tempted by promises of higher returns from other financial professionals, how they can ensure that all clients stay focused on the goals their financial plans were created to help them achieve, and why it’s so important to remind clients of their actual value.
As a starting point, it can be insightful for advisors to understand the underlying motives behind a client’s decision to end their relationship when they say they want to pursue better performance results. As while it’s possible the client was always truly more interested in investment performance than in identifying and planning for financial goals (and that they weren’t really a good fit for the advisor in the first place), there are often deeper reasons that go beyond dissatisfaction with portfolio performance (e.g., pressure from family members, an attractive 'deal' offered by an investment management firm, etc.) that shift the client’s focus from their original financial plan, compelling them to pursue the guarantee of more money.
Having a meeting to discuss these reasons can allow advisors to help clients refocus on their goals and priorities, reminding them that their portfolios were designed with those goals in mind while minimizing unnecessary risks that could otherwise jeopardize them in the long run. Advisors can even use these conversations to identify whether there are gaps in how they communicate with clients around how investment strategies are designed and chosen, how portfolios are monitored and managed on an ongoing basis, or how the client’s allocation is designed to align with the client’s values and goals.
For clients who feel confident about terminating the relationship, the conversation doesn’t need to focus on convincing them to stay. However, it may still be helpful for the client to reevaluate their motives and priorities (even possibly ending out with them changing their mind as they realize they were already in a good place with their advisor keeping them on track to attain their financial goals). But if the client is still convinced they can do better with a different advisor at the end of the conversation, it may be best to let them go.
Ultimately, the key point is that advisors provide tremendous value to clients by keeping them focused on what’s most important to them, even when they may be tempted to chase better returns elsewhere that sound too good to be true. And while it may be a rare occurrence for a client to decide to leave because of investment performance results, having a good communication strategy in place ahead of time can help the advisor remind their client of the value of ‘real’ financial planning and talk them off the ledge from making an emotionally driven (and potentially irrational) decision that they may later regret!
