Dealing with client complaints

There’s a particular advisor I’ll always remember. He said to me: “Keith, I tell every client the same story, and I want to share it with you.” He held up his right hand and asked me to pick a finger. Confused, I looked at him but decided to play along, hoping he wouldn’t ask me to pull the finger.

“Think of each one of my fingers as representing a year,” the advisor said. “At least one out of five years, the market will be negative, and your clients are not going to like you very much. You will not have caused it, but your clients will not be happy with you.”

Today’s investors will not soon forget this crisis. If we are going to get through this and eventually thrive again, we need to be proactive with clients, keep things in perspective and be honest with ourselves.

Telling clients that everything is going to be OK will not put most of them at ease. I heard one advisor speak of his approach recently. He asks clients if anything has changed since they did their initial risk tolerance and planning. “If nothing has changed, I tell them [they] should stay invested and ride out the market decline,” he said.

That is a good strategy in a normal bear market. But it is safe to say not many clients or advisors were prepared for what we are currently experiencing. The traditional measure of a client’s risk tolerance is invalid. All the tools advisors have to control risk have failed, and both clients and advisors alike are in a place they never thought they would be.

As such, that leaves us with two types of investors: the believers and the scared. (Guess which category makes up the vast majority?) Most clients are not wired the same way as investment professionals, who generally see the positive signals from the market. We have built-in biases because we have to be optimistic to be in this game.

But we have to remove our rose-coloured glasses and prepare for the probability that recovery may not be around the corner. Let’s hope it is around the corner, but do you want to put your reputation on the line if the recovery does not happen later this year? You have to work with clients for them to gain trust in you, the markets and the process.

The best thing you can do is to make sure they are part of the process of getting things back on track. If you tell them to do nothing, they will feel as though they are at the mercy of the markets and not in control of their destiny. Give them homework, such as writing out their expenses, and help them create a budget. Get them to differentiate between essential expenses (such as property and other taxes, heating, food, etc.) and lifestyle expenses (such as trips and dining out).

Help them get rid of expenses that are neither essentials nor lifestyle costs. Engage them in discussions and ask them about what they have included in each category. Tweaking a portfolio will empower clients and make them feel as though they are making a difference.

One advisor went through an exercise with his clients in December 2008 that he found very helpful and insightful. He asked each of his high-net-worth clients: “What is your number? What is the minimum dollar amount of safety that you need to sleep well at night?”

He put 100% of that amount in cash. He was surprised by many of the clients’ numbers, which gave him great insight into their state of mind. He has subsequently been surprised by the change of attitude in many of his clients. They are at ease and feel more confident about their situation. Another client has found a silver lining in his portfolio tweaking. Although he has experienced significant losses, the advisor’s ability to generate income has increased significantly, with yields on fixed income securities double what they were only a year ago among high-quality issuers such as the Canadian banks.

Finally, be your client’s rock. The best-of-breed advisors understand that a person’s financial health encompasses insurance, estate, tax planning — much of which is not directly affected by the market. Most important, clients need to understand that you did not cause this. The market will continue to experience ups and downs long after you are gone. Don’t let your clients point the finger directly at you. You are not the cause of this crisis.

Dealing with clients in this environment will likely be one of the most challenging experiences of our careers. But keep this in mind the next time you are dealing with a dozen clients complaining about their portfolio returns: On any given Sunday when Tiger Woods is trailing in a golf tournament, he hopes for windy, cold, wet weather because he knows that only the strongest players will have the toughness to compete in difficult conditions — weeding out the competition.

While this is a more severe bear market than most, it is still just a temporary bear market. This time, it may not be different — but you can make a difference by being proactive, realistic and optimistic with clients. Then rise above the competition and watch your business thrive and grow.

Keith Pangretitsch is the director of Private Client Services at Russell Investments Canada.

(04/16/09)