Many clients seek financial advisors for their expertise and their abilities to guide them through financial decisions. However, for some clients, the ambiguity that inevitably arises from uncertain outcomes can be very distressing, especially when it comes to investments during volatile times. While these clients may have general concerns about their financial future, their concerns may also be in reaction to messaging from other sources that guarantee (unrealistically) low or even ‘no-risk’ solutions. In these cases, advisors must find ways to ease their clients’ worries while also reassuring them that their plans are on track.
In our 92nd episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss why some clients need more certainty than others in their financial plans, how to educate clients who may not understand the inevitability of at least some level of risk in a financial plan, and how to maintain confidence and trust from clients who are fearful of their financial plan failing.
As a starting point, it’s important to understand that there is a difference between risk and uncertainty. As while risk can be quantified with a level of calculation that helps to give context to possible outcomes, it also helps clarify some of the considerations that can influence those outcomes. And for clients who don’t understand the mechanics of these factors and potential outcomes, the uncertainty of where their financial plans stand can be very uncomfortable. Especially when there are volatile conditions, some clients may be very distressed by the seemingly chaotic uncertainty of their situation, and not necessarily understand that the potential risks have all been planned for. Furthermore, by communicating proactively, advisors can maintain the confidence their clients have in them and deflect any misleading messaging from other institutions that may guarantee products that promise any level of unrealistic certainty.
Ultimately, the key point is that for many clients who have concerns about uncertainty (as with their investments, especially during volatile times), they may simply be uncomfortable about following a financial plan framed as a dynamic pathway subject to change as needed in the future. For these clients, in particular, financial advisors can help them make sense of the unpredictability that their plans account for, giving advisors an opportunity not only to educate their clients, but also to communicate their confidence and knowledge that they will be there to help the client keep their financial plan on track!