Teaching clients who didn’t take your advice

Many people, some of whom may be your clients or prospects, consider insurance products boring. Bonds too. Who needs a cash reserve? Then along comes a steep decline in the stock market. The writing on the wall is plain: “The advisor was right. The client was wrong.” What’s an advisor to do now?

People make many financial and investment decisions during their lifetime. There will be others. By not following your advice, they might have lost face along with money. To keep the client and earn more referrals, you want this to be a “teachable moment” — an opportunity to learn from their mistakes — and not an “I told you so” moment.

You might be selling insurance, or maybe this took place on the investing side of their assets. Here are some pointers for both on how to provide teachable moments:

1. It’s a journey. The world hasn’t ended. They haven’t lost all their money; they’ve just lost some. It hurts. Let’s use a positive example. Suppose you were suggesting investing in a certain stock. It’s down here, and your firm has a price target up there. They didn’t buy. The stock has moved up a bit. You were right, they were wrong. Your message is the stock has started to move in the right direction. This validates the firm’s recommendation. There’s still plenty more of the journey to go. It’s not too late to get on board. No one knows if the stock will hit its target, but it’s headed in the right direction.

2. Eggs and baskets. When you create a financial plan, the process often yields a risk tolerance. This usually aligns with an asset allocation of stocks, bonds and cash. Assume for a moment everyone should have a bit of each. The guy who is a stunt pilot can handle more risk than the person who won’t fly. After stocks completed 10-plus years of a bull market, some people think that’s the only place to put money. As their advisor, you tell them why they should take money out of stocks, moving it into bonds and cash, when things are going well.

3. Protection. Some people don’t take vitamins. They don’t see the doctor either because they’ve “never been sick a day in my life.” They may be people who buy lots of stock, dabble in real estate and buy things the advisor doesn’t understand. You’ve explained why insurance is important from the standpoint of principal protection. The decline in the stock market makes products that grow tax-deferred, with the safety of the principal very attractive as an alternative.

4. Few moving parts. The real estate investor loves property. They buy apartments. They often talk about the yield they get from rentals. You’ve talked to them about certificates of deposit, bonds and insurance products. They, however, think the yield is too low, relative to what they collect in rental income. Then something happens. The rent doesn’t come in. The tax and mortgage bills don’t stop. Now, they might understand the attractiveness of putting part of their money in easy-to-understand investments that pay interest, even if it’s lower.

5. Diversification. They love the stock market. That’s where their retirement money, their play money and their savings are all invested. You’ve told them insurance products, by earning tax-deferred income, would be a good way to diversify their holdings and prepare for retirement. Still, they loved their stocks. Maybe now, not so much. Reliable — yet boring — has new appeal.

6. The big score. Your prospect has a young family. They invest in the stock market. It’s their passion. They buy stocks on the leading edge of the next technology trend. They describe themselves as risk-takers. Their plan is to make “the big score,” that big investment that will make them rich. You remind them, “What happens if you die? You won’t be there to provide for your family.” The “big score” that really matters might be the life insurance policy that pays off if something happens to them.

Sometimes, it’s hard to give practical advice. When things are going their way, people don’t want to hear it. Then something suddenly goes wrong, and they’re a lot more receptive. Your approach should not be to make them feel like “you told them so.” It should show them how circumstances have now changed, and why following your advice makes sense now.

Bryce Sanders is president of Perceptive Business Solutions Inc. His book, “Captivating the Wealthy Investor” can be found on Amazon.

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  • p kd nambiar says:

    one cannot compromise the monthly basic needs. For that he requires guaranteed products. Only insurance companies can do that.But all eggs are not to keep in one basket. You can go the equity also once the basic is covered

  • bryce sanders says:

    Bijibilla, thanks for taking time to comment on my blog. Your points are correct. You bring up the importance of bringing up the positive. It’s not an adversarial relationship with a winner and a loser. It’s a collaborative, long term relationship.

  • Bijibilla Rama Rao says:

    An insurance adviser should play a key role and see that the client should understand in such a way that the advise given by the adviser is perfect. Better to give all options to the client and let him think and allow for some time to analyse and follow the information provided. Irrespective of the facts that explained are not worked out still take a positive angle and try to explain investment opportunities which makes an individual to stabilize and make stable. Life is like a journey. Ups and downs will be there. Some times difficulties will come and expectations will not materialize. Be positive and take a step to help the customer and ask him not to keep all eggs in one basket. Divert and allot the funds in different instruments. Even if one instrument fails in another instrument it will gain. Be with customer in difficult times and try to monitor and assist him at all times. It helps and keep the customer to retain in long run.

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