An advisor calls a client and says, "Client, how are you?" "Not too good," says the client. "I've been very weak." The advisor says, "Why are you so weak?" Client says, "Because I haven't eaten in 38 days." The advisor says, "That's terrible. Why haven't you eaten in 38 days?" The client answers, "Because I didn't want my mouth to be filled with food if you should call."
…Bah-dump-bump
Even if you are under 80 years old and have never been to the Catskills, you probably have heard this joke, or some variation of it before. It is so old, and not laugh-out-loud funny. Why tell it? Two reasons: Volatility and Client retention.
Volatility is all around us and it's not only the markets that are volatile, your clients' moods may be as well. If they're a little emotional in this environment, who can blame them? On the day of this writing (February 5), we saw major drops immediately following a week in which we experienced a big rally. The Dow Jones Industrial Average (DJIA) plummeted 370 points, or 2.9%, its biggest one-day percentage drop in nearly a year. The Nasdaq fell 73 points, or 3.1%, and the S&P 500 dropped 44 points or 3.2%. This was the first time since January 2003 that all three indexes were simultaneously down more than 3.5% in a two-day period.
Based on my very unscientific study, the consensus was advisors experienced a feeling of pure nausea. One advisor, in his best (or worst…who could tell) Marlon Brando impression said, "It's time to go back to the mattresses." If you are not familiar with this expression, it is a reference to a famous line in the movie "The Godfather." In the classic Francis Ford Coppola film, it referred to a period of gang warfare, when the soldiers of the Corleone crime family would be "holed up" in various locations to concentrate their forces and changing their regular habits to avoid being "whacked."
For an advisor to have a temporary feeling of nausea may not really be harmful. It is more than understandable, considering this market is not fun. It has been one big, bad roller coaster ride and that can make anyone feel sick. But wanting to hide–that's not a good thing. Why would the advisor doing the Don Corleone impression–and unfortunately too many of his colleagues–want to hide? Because he sold, or perhaps oversold, performance as opposed to process.
Sell the Process, not the Performance
When performance is sold, the only thing that is guaranteed is that there are no guarantees. The underlying problem with selling performance is that you and your clients are psychologically unprepared for downturns like the ones we have been experiencing of late. You may blame the markets, but your clients are going to blame you when the market declines. You are betting your livelihood, and those of your clients, on something that neither of you have any control over.
Now, if you are reading this article you most likely are not one of the advisors heading to the mattresses, but you perhaps are still feeling that angst and some distress (perhaps even some nausea). I can tell you to relax–but that's much easier said than done. However, it may still be doable if your communication/education strategy is up to par.
It's important that you not only address what is happening now, but to have a consistent strategy that has been in effect throughout your relationship with the client, carrying through reviews and during other times of market madness. When expectations are regularly managed and communication is consistent, you and your client are more psychologically prepared for downturns. Thus, it makes it more tolerable to weather that downturn.
