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The Tide is Going Out

Two Simple Truths to Refocus the Contented Client

How many times recently have you been talking with a prospect and heard “I am happy with my current broker, they have been doing really good for me.” I am sure you have heard this more and more as the stock market continues to rise. It is very easy for people to remember the good and forget the bad. We have enjoyed 6 straight years of market gains, and the clients you are speaking with are focusing on these recent years and have forgotten how bad the last recession was. Have you heard this one “Yeah, I did lose money the last time the market went down, but now I am back to where I was, and maybe even a little higher.” When I hear this I am baffled that smart, rational people are ok with just getting back to where they were 6 years ago. How can we get them to refocus on what is important?

“Only when the tide goes out do you discover who has been swimming naked”.

– Warren Buffett

This is a perfect quote that will refocus your client’s attention. We want them to realize two simple truths. One, when the market goes up so do most investments; it’s the tide that floats all boats. When the market is rising most stocks, mutual funds, variable annuities and even some bonds also go up to varying degrees. Everything looks good when the market looks good. I like to modify my client’s thinking by telling them this: The true value of a financial professional’s worth to you is not how much money they make when the market is up, it is how much they don’t lose when the market goes down. It is much harder to protect from losses than it is to pick a winner when everyone is winning. This leads me truth number two.

The second simple truth to share with your clients is this: When the strategy that allowed losses in your portfolio during the last downturn hasn’t changed, do you really expect the outcome to be different next time? All too often our clients allow themselves to rationalize that next time things will be different. I will challenge that thinking every time. Change needs to be made and sometimes change is scary. People don’t want to think about changing their strategies, holdings, investments, or advisors but in order to have a different outcome they must use a different approach.

I will ask clients if they think that their broker currently has them in the strategy that the broker thinks is the best for them. Every time the answer is yes. And when you incurred the losses last time, was that also was the best tool for you according to the broker? Silence. Most clients will not have an answer to this and will look to you for a second opinion now that they understand this second truth. They don’t want to be naked again when the tide goes out.

Show your clients that there is a different way. They can be protected from market losses.