Dealing with Clients’ Emotional Volatility

When investors act out of fear, they often take actions they’ll live to regret. Emotional volatility can do far more damage than market volatility. The first step is to establish the philosophical context to address this challenge and then provide the historical framework to support it.

Goals

  • Establish a philosophical context to address the challenge of fear.
  • Explain how you will not allow your clients to knowingly derail their own objectives.
  • Determine when it’s time to refer a client who refuses to listen to your advice.

 


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Practice this script to help nervous clients realize the value of measured decisions over kneejerk reactions.

Script

“I believe there are two ways to go through life: faith or fear. I choose faith: faith in the long-term viability of a free people, in an open society, under the rule of law, with private property rights, to improve their condition over the long term. Now this has only been true for 6,000 years of recorded history. However, if it ever ceases to be true, the last thing you and I will be worried about is our portfolio. I believe it is this reasoned faith and historical perspective that informs us and guides our long-term wealth management strategy. We can therefore only work with clients to make their financial and investment decisions with the same philosophical and historical perspective. So Mr. and Mrs. Jones, how do you make your investment and financial decisions … faith or fear?

“Mr. and Mrs. Jones, one of the primary reasons you are hiring me, is to periodically over the next 20-30 years, protect you and your family … by telling you no. Let me explain. At some point in the future, the markets may go straight up for three or four years and you might feel like you missed out and be tempted to mortgage everything you own, put your young children to work full-time, take on an extra job and put all that extra capital into the market. At that point, I will not only say ‘no,’ but ‘heck no!’ At another point in the future, the markets may go straight down for two or three years, and you will come to me and want to sell everything and invest it in tin cans and a shovel … to help you bury your assets in your backyard … and again I will say not only ‘no,’ but ‘heck no!’ Because here is the agreement we are making today: I won’t let you commit financial suicide, not on my watch. If you want to do something like that, you will have to fire me and find someone else to do it for you. Does that make sense?”

By combining a strong investment philosophy with historical precedents, you can easily calm frightened or angry clients.

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Why This Matters

Always address the greatest challenge facing your clients: Emotional volatility.

Explain to clients that there will be times you might say not only “no” but “heck no” because you refuse to allow them to fall into financial ruin. You must have the courage of your convictions and stand up for what’s right. No reputable doctor would prescribe a treatment commanded by a patient, if that treatment would do the patient harm. They would simply refuse to treat the patient and suggest that he or she find a new doctor.

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For examples of what successful scripts look like, or to learn more about CEO Advisor Institute, contact your OppenheimerFunds Consulting Team at 1.800.255.2750.