Financial advisors can find themselves in tough situations. You can give the best advice possible, but so many factors are beyond your control. You cannot control world events. The stock market can deliver unexpected surprises.
There are many times when things don’t work out like you hoped, and when this happens, you often need to break bad news to clients.
Most people avoid confrontation and unpleasant situations. We do not want to deliver bad news. Advisors are clients’ primary point of contact, and you need to act.
- Don’t duck calls. You know that clients will be upset and expect a challenging conversation. Somehow the bad news is your fault, and you should have anticipated this development. Avoiding calls will only make matters worse. You earn money from this relationship and must be seen as responsive.
- Do make the call as soon as possible. Getting difficult tasks out of the way first thing in the morning is a good strategy.
- Don’t assume that clients will stay unaware. There were times when things were going so well that some clients did not bother opening their statements. Volatile markets cured that bad habit. They will hear about the bad news regardless, and you want them to hear from you first.
- Do take the long view. Do your clients believe that the economy will do well over the long term? Do they believe that the new technology and trends represented in their portfolio will become great one day? Do they believe that they own good companies? Do they think that their favorite stocks will weather the storm? If they could, why not the others?
- Don’t explain that it’s out of your control. When events move markets, it is easy to say: “Don’t blame me.” Clients can understand that there are unsettled seas out there and that their financial boat might be in trouble. They want you to chart a course that gets them around or through the storm, making progress toward their destination.
- Do have an opinion about what should be done next. When I once asked someone what they thought the market would do, they said: “It might go up. It might go down. It might fool us all and go sideways.” Clients pay for advice, and that is not advice. That is either avoiding the question or avoiding committing to an answer. This is a time when if-then statements can help. “If the Fed does (this), then the markets should do (that) for these reasons. …” You should have a vision of where you think things will be in a year or five, not focus on tomorrow or the end of the week.
- Don’t blame the firm. When the company raises fees, you might be tempted to say: “It’s them, not me.” You might think you are taking the clients’ side, but they see you as an agent of the firm. You need to defend the firm’s actions by providing the logic behind a decision. Otherwise, the client might think: “If she doesn’t defend the firm’s decisions, will she defend me if I have an issue?”
- Do remind them that you are also an investor. Assuming this is the case, I have found the expression “We are all in this together” reminds clients that if they are losing money, you are too.
When there is bad news to be delivered, it is best to get it done quickly. It is also important to be prepared. See the accompanying gallery for six scenarios in which advisors need to deliver news that clients likely will not like.