Media war: Avoid winter of discontent by resetting client expectations this summer (Part 2 of 2)

(June 2003) The dramatic revaluations within the world economy over the last several years continue to command newspaper headlines and rule the airwaves. CPP assets were whittled away. Many corporate defined benefit pension funds went from fat to lean to mean. Many mutual fund investors just cut and run.

The investment assumptions that guided financial planning at the turn of the century seem like ancient history. Just think about the anticipated return on investments that many financial professionals used only a couple of years ago as a basis for planning.

Reality check

More than a few financial advisors set unrealistic expectations for customers, mostly in good faith. Even the chief actuary of Canada, reporting last June, forecast a real rate of return for Canadian equities of 4.5% from 2002 onward and of 5% for U.S. and foreign equities. Maybe that will average out into the future.

At the moment, however, it appears many carefully considered financial plans need adjustment. Advisors must be careful not to be fair-weather friends.

A tricky time

Financial professionals who define themselves primarily as securities sellers may be casting about desperately looking for something with short-term performance appeal — something “easy to sell.” However, those who chose the path of advisor may be fending off pressures to sell “quick fixes” and are busy delivering clients difficult news. They are helping their clients re-evaluate how to reach their personal financial objectives. In some cases, objectives themselves may require rethinking. That will be tough.

For RRSP investors, some comparisons may be made to the world of defined benefit pension plans. Many corporate plans have gone from being over-funded a few short years ago to being under-funded today. If objectives are to be met, new money must be found or retirement earnings will decline.

Individuals with RRSPs must decide what they expect from their personal pension plan and whether it is sufficiently funded, even whether — based on current contribution limits — it is possible to top them up enough to get the job done. The need may present itself to discuss thoroughly the taxation issues involved in investing inside and outside an RRSP.

Soothing summer

It may be better to tackle delicate issues during the seasons of renewal rather than waiting until RRSP season, when bank accounts may be tapped out by holiday spending and when mindsets can be as cold and gloomy as the weather.

The mental adjustments necessary for change may be more easily accomplished when any attendant pain can be assuaged with a round of golf, a trip to the cottage or a summer vacation. Financial advisors need a working summer to avoid another winter of discontent.

Rebuilding trust and confidence

This time, clients’ expectations must be set in a range where success is possible. Thinking for the long term is vital, but, for some, near-term accomplishments may be important to rebuild confidence in the investing process. Many investors must be “born again” with a new view of the world and themselves. Those who, with bravado, declared themselves “risk-takers” only three short years ago may now wear a sheepish grin.

Financial advisors must re-earn the role of being their clients’ trusted, important source of insight for making investing decisions. They must satisfy the emotional needs of clients pinned down by the bombardment of bad historical results or else find their customers have left them for a competitor, or even lost the will to invest.

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To read part one of this two-part “Media war” series, please click here.

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Ken Whitehurst is a writer, editor and private communications analyst. He was formerly publisher and editor of the Global Stratagems information services for professional financial advisors and a senior executive with Global Strategy Financial Inc. Ken can be reached at kenw@aci.on.ca.