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Your Greatest Value Isn’t Your Knowledge
The best Advisors don’t just explain investments. They help clients make better decisions.
A Lesson I Learned Early
When I was a young Advisor, I overestimated the power of knowledge and underestimated the value of wisdom.
I had no experience to offer my clients and prospects, so I relied on my knowledge to carry the day.
I knew my products cold and carefully studied the markets.
I didn’t want my clients to fail, and I thought my knowledge was enough to ensure success.
I thought being smart was the answer.
Then Reality Set In
Well, I did have clients fail.
Not many, but a few.
And it had nothing to do with knowledge.
It had everything to do with behavior.
Theirs, not mine.
Knowledge Has Never Been Scarce
And it’s still true today.
The knowledge is out there—more accessible than ever.
The knowledge was there in 2008.
The knowledge was there when the tech bubble burst.
The knowledge is always available.
But knowledge isn’t always the answer.
It isn’t a lack of knowledge that typically spells disaster.
It’s emotional decision-making.
It’s risk aversion.
It’s overconfidence.
It’s a dozen other behavioral pitfalls.
Lifestyle Inflation
I had a few clients caught up in lifestyle inflation.
Every time they got a raise, their expenses went up.
A bonus meant a new car.
A raise meant dining out more often.
A good year in the market justified a lavish vacation.
You can spend more than you make for only so long.
This Is Where Advisors Matter
When these situations arise, your technical expertise matters little.
Your soft skills matter a lot.
Your IQ gives way to EQ.
If you see clients heading toward a behavioral cliff, act early.
Bring them into your office.
Clear off your desk.
Shut the door.
Then talk to them as a friend as well as their Financial Advisor.
Help Them See What They Can’t See
If the problem is lifestyle inflation, point out that every time their income goes up, their expenses go up.
That isn’t sustainable.
Eventually, it catches up with them.
Tell them that, as both their friend and their Advisor, seeing this happen concerns you.
If they are ignoring your investment advice, remind them why they hired you in the first place.
There’s a good chance they’ve forgotten.
If they are fixated on short-term results, explain recency bias.
Stretch out their time horizon.
If they’ve forgotten the fundamentals of diversification and risk management, review them.
It’s About More Than Investments
Making better investment decisions has to go hand in hand with making better behavioral decisions.
If you’re a student of the market, become a student of your clients’ behavior.
That’s Your Greatest Value
Clients need someone who understands investments.
They also need someone who understands people.
Make an impact.
You’ve earned the right.
You are the trusted family Advisor.
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Related: Your Most Agreeable Clients May Trust You the Least