3 Ways to Help Alleviate Emotional Decision-Making
Successful investing is not about magically timing the markets. Successful investing is about being patient with your long-term financial plan. During times of volatility, connecting emotionally with clients can help ease their concerns and restore their confidence in the financial plan you have built together.
In our latest Kestra Out Loud podcast episode, Theron Schaub, professional magician and Vice President of Strategic Relations for Buckingham Strategic Partners, joined us to demonstrate sound investment principles using some magic tricks. Theron uses an evidence-based investment philosophy combined with discipline in the markets to maximize clients’ rates of return.
Here are three strategies to help guide clients to effective investment decisions:
- Take a “life-first” approach.
Many financial professionals treat the client discovery process as a financial, fact-finding mission. Our human nature operates on emotional rather than logical connections. Instead of beginning the relationship with asset allocation worksheets, implement a “life-first” approach. Ask about your clients’ family, career, and goals. After building the foundation for an authentic relationship, back into the financial tools that will best help them achieve their goals.
- Utilize timely, relevant communication.
With the growing adoption of robo-advisors, it is more important now than ever for financial professionals to differentiate their value offering. Develop a personal connection with clients by sharing your story - why do you do what you do? The more personal you can make your story, the more relatable it will be.
Establishing this trust will be critical during times of market volatility. Schedule timely communications such as informational webinars and check-in calls to reevaluate portfolio allocations. These proactive measures can help put an anxious investor’s fears at bay and prevent impulsive decisions to sell.
- Provide historical perspective.
From 1998 to 2018, the average rate of return for the S&P 500 was 7.2%. The average equity fund investor only received 5.2% return, indicating that investors are succumbing to their emotions by buying high and selling low. Financial professionals can help mitigate this behavioral gap by providing perspective on historical market performance.
Explain to clients that their financial plan has built in considerations for temporary market declines. The only way to suffer a permanent loss is to sell in a volatile market. Thus, it is critical to focus on the long-term outlook.