Print
Guest author Michael Noland is a financial advisor and managing partner with Integrated Financial in Tulsa, Oklahoma.

One of the things I tell my clients is that if I’m doing my job as their advisor, they will be mad at me fairly often. This definitely gets their attention and then gives me an opportunity to have an important conversation about expectations.

To some extent, we probably all grapple with best practices for keeping clients happy as well as on track. Clients might call you about a hot stock tip their neighbor told them about, or they may feel strongly about being in a concentrated position but are lukewarm on the idea of a truly diversified portfolio. I like to tell my new clients, “If I told you I had a system that figured out how to time the market, you should run the other way immediately. (And I wouldn’t be working for a living if I actually could.)”

One of the tools I like to use with my clients to help set expectations and illustrate the power of diversification is the ubiquitous “Skittles” chart. We sit together, examining the various asset classes and how they rotate, noting when some are on top and others are on the bottom, depending on the year. I then ask them if they notice any particular patterns forming. The answer is always “No.”

“That’s right,” I say, “because there aren’t any.” You cannot time the market; the future is unknowable. And it really doesn’t matter. Because if you have the appropriate asset allocation for your client’s specific risk tolerance — taking into account their cash flow needs and future long-term goals — that should lead to a more diversified, balanced portfolio.

Our objective is to be square in the middle, what I like to call the “Goldilocks” approach. A too-aggressive portfolio might please clients while certain asset classes are enjoying an upswing, but taking on too much risk may eventually prove foolish at the next downturn if clients bail out at the bottom, converting a fluctuation into a realized loss. Conversely, if client portfolios are too conservative, they may miss out on potentially greater market returns if they jump out of the conservative portfolio and into a more aggressive portfolio at the top of the market, only to see values go down. My job is to guide them to the middle and keep them there, despite what is happening politically or economically in the world.

Clients might wonder why they don’t own a certain stock or more of an asset class when it’s “hot.” Emerging markets may be on top one year and then something else is the next big winner. If clients were in emerging markets in 2008, they probably would have wanted to sell, but if they had they would have missed out on the recovery the following year. By keeping clients in the middle as much as possible, you help to create stability in the face of ever-fluctuating markets.

Capitalism has worked for 200 years. Quality companies create much-needed goods and services. The fundamentals haven’t changed.

During market corrections I may have some clients calling in a bit of a panic, wanting to sell a lagging asset or take their whole portfolio to cash. I tell them the same thing every time: “Remember our initial conversations. There will be times like these that will test your discipline and commitment. Sometimes the hardest thing to do is to do nothing. If your long-term goals have not changed or shifted, then we don’t need to do anything.” Having a just-right or “Goldilocks” portfolio means sometimes you need to stop, take a breath and refocus your intentions.

Ensuring your clients have a deep understanding of your diversified investment approach can lead to more meaningful and productive meetings and stronger relationships. Finding “just the right fit” for your clients’ portfolios means they may be more comfortable with the inevitable ups and downs of the market and stay committed to their important long-term goals.

16-286