Guiding Client Expectations by Judith A McGee Published in JP Morgan’s Lessons Learned, 2012

The job of a financial advisor is demanding regardless of whether or not the economy is struggling; emotions tend to run high around the subject of money. In my experience, the dears that emerge from out clients during times of economic instability are easier to manage than the expectations generated by greed when the markets and economy appear to be booming.

When the markets are on the tear, people become inpatient for profit. While we may urge restraint and moderation, clients can be hard-pressed to hear us. Expectations for performance can spiral our of control, resulting in clients desiring to take unnecessary risks and making unwise decisions.

But when the markets are unstable – as they have been over the past few years – people are fearful. Financial advisors are equipped to help, as we have clear avenues available to allay clients’ distress. One such avenue is financial education.

People do not typically fear what they understand. Through financial education – a core offering of our practice – we help clients feel more confident and in control of their investments. Clients can access their personal financial snapshots and reports 24/7 – this includes asset and liability aggregation. Timely, straightforward and thorough communication gives our clients peace of mind. It makes everyone’s job easier.

In order to help our most anxious clients, we try to understand where their fears are coming from – and this is where my all-female senior team shines. Sometimes we feel like armchair psychologists. In addition to our perspective gains from behavioral financial training and day-to-day experience, my team has developed a network of professional counselors and coaches (PhDs, MDs, and others) whom we can call upon for advice when particularly sticky situations arise. Especially in this economic climate, it’s critical to know when to reach out and ask for help from experts.

Since 2008, this country has witnessed a psychological shift from greed to fear, and gradually, a return to an uneasy balance. Early in the crash, many advisors found their clients panicking. People were selling equity investments, searching for liquidity and buying gold. These impulses are no longer runing rampant. Gold fever has subsided, though most people sense that inflation will return and fixed income will be unable to keep up. We discuss macro-economic issues and portfolio construction with out client sand help them understand why certain investments are chosen for thier portfolios.

Although clients’ portfolios have recovered and morale has improived, people reamin cautious. The past few years have changed out outlook for the financial markets. Today, annual return expecations that exceed 5 to 8 percent may be too optimistic. Our clients, many of whom are committed to family and community – “millionaires next door” – are saving more, avoiding high-leverage situations and eliminating flashy spending.

Such moderation is a positive development, a very good thing. My biggest concern is when clients overspend and demand unrealistic returns. As long as people can retain reasonable expectations for reasonable returns, I am confident that their economic futures (and mine) can be bright.

Making Life a Richer Experience