Say What? Questions you want to hear from clients

(July 2007) Do you have a lot of one-way discussions with your clients? You’ve probably already sensed that some clients find it hard to know what to say or what to ask. If you thoughtfully encourage questions and bring out the concerns that your client can’t articulate you can develop their confidence.

Smart investors should ask questions, regardless of whether or not they are particularly knowledgeable about the markets. So how do you make sure that they understand the risks, costs and how the markets will help them achieve their financial goals?

Related article: Four questions you should ask (A template letter for clients)

Putting the following four questions into your clients’ hands is a good step in the right direction. It will add value to your interactions and help them trust in your relationship.

1. How does this investment generate returns? Your client must be able to understand how their investment generates a return, before they buy. Whether it’s a stock, a bond or a mutual fund, make sure your clients understand the mechanics of how the investment should generate funds. If you sense doubt, ask them about it point-blank. This is the first step to their buying into your advice, and developing trust in your ability to assess and explain the markets.

2. How does this fit into my financial goals? When clients understand how your advice fits into their plan to save for a down payment or to generate long-term returns for their retirement, they develop trust in you. A lot of clients might be satisfied with the knowledge that you are investing in a Canadian equity mutual fund, but take your explanation a step further and show why you believe the recommendation fits their needs better than any other product. You know that some key elements to consider are return, time frame, and how the product fits into the client’s portfolio. Make sure your client understands and feels confident about your recommendation.

3. What is risk versus return? Clients need to clearly understand how risky their investments are, how long they will be invested and how each one fits into their overall portfolio. A properly balanced portfolio is probably the most essential service that you offer your clients — make sure that they know what you’ve done and why. Every opportunity to describe this makes your client a better investor and increases the value that you bring to the table. For more advice and tips to help explain risk to clients, click here to read the related article, Beyond KYC.

4. What about fees? Most clients do not have a good understanding of how fees impact investment holdings. In fact, many don’t understand how fees work at all. If you are proactive and provide full disclosure, your client will learn that you are looking out for their best interest. Provide context, including fees for comparable products, so the relative cost of your advice is understood.

Sooner or later, your client will read an article about sales fees and other costs. If you’ve never spoken about this, and never showed your client why an investment is still a good investment after all fees are considered, you may find yourself with a client who is doubting you. If you have never talked about fees, and your client doesn’t understand them, you will also have deserved that doubt. Address this question as part of why you are recommending a product and the conversation will be a positive one.

The Canadian Securities Administrators also have a tracking worksheet called When Your Broker Calls, Take Notes. This worksheet helps investors to organize their conversations and record them. When they do this, they tend to be a lot more engaged and help make your time more efficient.

It pays to have your client ask questions and understand what you are recommending. It increases the quality of your conversation, it adds value to your relationship and also helps your client “get” what you are doing and why.

Tom Hamza is president of the Investor Education Fund. For more information, visit www.investored.ca.

What do you think? Let us know by sending your letters to feedback@advisor.ca.

(07/20/07)