Discussing Risk Tolerance

I recently asked several of my colleagues their thoughts on coaching advisors around the "risk tolerance" conversation.  Here is what they had to say:

Jim Privette - "I have made the point that there is the knowable and the unknowable. The knowable is the client insight, the unknowable is what the markets will do next. I ask advisors what their client conversations are about these days and the answers are "should I get out?" or "what stocks to sell or buy" (timing and stock selection). The 7 step interview focuses back on the knowable and the most important decision (asset allocation). I think we need to couple the risk tolerance question with today's unprecedented volatility. Clients current beliefs about risk are being challenged. I encourage advisors to "understand the clients assumptions (based on their experience)and guide the client to rethink risk in light of current market conditions. Risk tolerance will ultimately be about long term outcomes but volatility assumption about asset classes and their historic performance and characteristics are on trial and each day gives us new evidence."

Phil Buchanan - "On the tolerance for risk issue, I've been breaking it into two pieces:

1. The typical up/side down side capture question ---- but I've added time periods of one day, one month, one year and five years, but benchmarking off the answer to the one year question. My reasoning is that so many people are focused on day to day fluctuations that they can't make rational judgments. However, by putting the full range of time elements on the table, it forces the client to "confront the noise".

2. The new element/wrinkle I've added is "Absolute Stop Loss" threshold. What is the $ value you do not ever want to fall below - followed by how would the proceeds then be managed, followed by what would be the plan for re-entry. Of course, this is a great place to highlight "Issue & Consequence" questions."

Larry Divers - "I am very passionate about this topic and I have always set up the +/- 20% in the investment interview around the best case worse case scenario. The 20 %( rounded) is the long term standard deviation of the S&P 500. This number however is based on one (1) standard deviation not two (2) or three (3) standard deviations. Thus, the current market conditions are not outside of the realm of probability and they have happened the past. That is why we need to point out to our clients the best and worse case scenario on one, two and three standard deviations.

From a compliance standpoint this also works well."

Daniel Smith - "I preface that this is a gauge as to risk tolerance in normal market conditions, the time frame is not important as long as it isn't short, and the percentage isn't important as long as it is the same up and down, and that by asking it both ways you assumptively close to the fact that the answer needs to be relative up and down.  If the client does not answer that way, stop and have a conversation about it. And in today's market environment there may be other risk tolerance comments are your clients are considering.  I think it is important that the 7 Step is a conversation model, not 7 questions that will give you the magic answer, rather it is a framework for appropriate and complete discovery."

I have been coaching advisors to include questions like "What has been your experience investing." "What has worked well you and what hasn't?"  "How did you feel about that?" "What role did emotions play in the decision making process?" Ultimately you need to really understand where your client is coming from, but at the same time they need to understand that if they let emotions entirely drive their decision making they may be at even greater perril.

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Improve your performance by a factor of 100! Here is how.

What makes some people more skillful than others?  Are some people just born with all the talent required to be a successful advisor?  Or is there something else going on here?  Can skill be built and developed with anyone who is willing to do the work to achieve a higher level of performance?  Or is it like a veteran Trust Officer said in a recent workshop, "Great sales people are born not made.  That is what I have been told by I every manager I have had".

For the past three months I have I posed these questions to the groups of advisors I have been coaching.  Almost always a debate breaks out.  And the dialogue sounds a lot like  Randolph and Mortimer Duke's argument in the movie Trading Places, which ultimately results in their bet for the "usual amount", to see if it is really "nature" or "nurture" that makes the difference. All in the name of science of coarse.

Author Dan Coyle has just released a new book on this very subject, The Talent Code.  In this work Coyle examines what is really behind great talent.  And as opposed to the Duke brothers approach to the topic, Coyle draws on real science.   Using findings from the latest research of the brain, Coyle shows how skill is really developed.  He unveils the three key ingredients; Ignition, Great Coaching, and Deep Practice.  And it is at the intersection of these three ingredients that something very special happens.

I was first exposed to The Talent Code through a news story on ABC's Nightline.  In eight minutes, journalist John Donvan highlighted the some of the key learning in Coyles work, which sheds new light on how anyone, including Advisors, can dramatically improve their performance and consequently improve their results.  Watch Donvan's story below, see if it doesn't give you a fresh perspective.

I think this is when Randolph admits to Mortimer that he was right.  It is nurture not nature, and hands over to his brother the total sum of "one dollar".  The usual amount.

After watching this story I immediately ordered a copy of Dan's book.  The learning in this book is astounding.  A must read.  John Donvan only had eight minutes in his news story and he covers the content well.  But what you just watched is only the tip of the iceberg.  Nightline should give Donvan a full hour.

What Donvan didn't have time to cover was one more critical component identified in Coyle's work, Ignition.  Ignition has to do with motivation.  And this is a really important ingredient.  You know this if you have children who you have signed up for piano or tennis or some other activity and it just didn't click for them.  They didn't ignite.  And as a result they didn't give the effort for the Deep Practice required to lay down the layers of myelin that would lead to better performance.  Several hundred dollars later (or thousands depending on your own ignition as a parent) you chalk it all up to experience and move on.

So if you are an Advisor, or you 're accountable for the results of Advisors, and you want to see real significant performance improvement, you have to first start by asking the question, do you really want it?  Do you desire to perform and achieve at a higher levels? Are you hungry for it?  If so, find a great coach, commit the time and effort required to practice, and learn from each encounter. Find and fix the errors. "That's the royal road.  That's the path to skill."

So let me know your know your thoughts on the subject.  What does this mean to you?  The Trust Officer I mentioned above said it gave her a new aspiration.  She realized that she too could be a great sales person.  It was in her control.

Articulating Your Brand - Are you satisfied with your current message?

I just participated in a workshop in Seattle with an outstanding group.  50 plus advisors with average LOS of 20 years plus.  Experienced, seasoned, successful and best of all committed and eager to improve their performance.  As someone who has chosen the vocation of  helping others improve their performance, I can tell you there is nothing more fun than working with people who want to get better.   Conversely there is nothing more frustrating and demoralizing than trying to help someone who doesn't believe they need any help.  You now the type.  Status quo is O.K. for them.  But this program was different.  This was an "opt in" program.  And not only did these advisors have to raise their hands to participate, but they also had to qualify to get into the program.  And the program was awesome.   A complete curriculum spanning several months, with over 140 hours of content, delivered both in the class room and through self directed study.  This was truly aimed at helping advisors improve their performance.  This wasn't a training event.  Instead, this was a learning program.  These advisors wanted to learn how to execute at a higher level and they were being given the resources, knowledge and opportunity to practice and build mission critical skills.

My part of the program involved tactics to attract new high net worth clients.  One of the key skills I teach in this practice area is how to articulate your value proposition, or as we frame it, your "branding message".  What excited me most about this group was the passion they had for wanting to perfect their branding message.  They wanted to find just the right words to express their value proposition, in essence their promise to their clients.  Now keep in mind that this was a veteran group.  Average LOS of 20 plus years.  Yet at each break they kept coming up and asking me to help them refine their message.  "What do you think of this"?  "Tell me again the way you said that".  "What works best here"?  Even after the program I was getting emails asking for feedback and input.

These were experienced professionals.  They regularly explain this kind of stuff to prospects and clients.  The "what they do".  Yet they know how important this message is and they were willing to take the time to re-examine their current message and in most cases re-invent it entirely.   Wow!  Nothing more impressive than watching  a thirty year veteran in our business, redefine their personal vision of how they add value to their clients.  And to see them get excited about that means. 

So are you willing to re-examine your branding message?  If so, here are some tips.  Start first by thinking of what space you want to occupy in your clients mind.  Brand in many ways is about competing for mental real estate.  Think about any great brand and ask yourself, what do you associate with that brand?  What is the experience of that brand?  What needs would you expect to be fulfilled by that brand?

Now ask yourself, what do your clients associate with "brand you"?  What needs would they look to you to fullfill?  Do they have a complete picture of what you can do?  To check this last one, ask yourself this,  have you ever heard one of your clients say "I didn't know you did that".  If so, and be honest we have all heard that on, it is a good indication your messaging is not allowing you to stake out the right real estate in your clients minds.  I say that because I know exactly what hapened prior to you hearing your client say those words.  They told you about something they did or bought from someone else.  You then said, "I could have done that for you".  And then they said. "I didn't know you did that."  Ouch.  That one probably cost you some money.

So whose fault is it that your client goes elsewhere to do something they could do with you?  Yeah, that's right.  Its you.  Its your responsibility to educate your client about what they should expect from.  What you can help them with.  What your value add is.  But you say, "there is some much to tell them, where do I start"?  That is why it is so important to have a well thought out, well rehearsed message.   Think about a message that can cover these four points.  First, "what do you do"?  Second, "how do you do it"?  Third, "what are the resources of your firm"? And forth, "what distinguishes your practice from a service perspective".  These four points can serve as foundational frame work for crafting your personal branding message.

Converting Personal Relationships into Business Relationships

Last week I lead a workshop in Seattle for a group of very experienced advisors with one of the largest firms on the street.  The program focused on creating new business opportunities.  Shortly after the workshop I received the following email from one of the Financial Advisors.


"I quite often built friendships at my athletic club with very successful people.  I never know how to ask them for a "meeting" and take it from a personal relationship to potentially a business relationship as well.  Anything that you could suggest that I say to be able to "ask" for a meeting with them?"


T.


Here is the email I sent back to him with my suggestions.  Let me know what you think.

Dear T.

Thanks for the question, I suggest you try one of these two approaches.  

First, here is a way to ask for an appointment, particularly if this is someone that is a relatively new acquaintance. 

“You know Bob, I have really enjoyed the opportunity to meet you socially through the club and was hoping that I could have the opportunity to introduce you to myself professionally.  Maybe we could meet at Starbucks for a cup of coffee one morning this week, and I could share with you a little about what I do in my role at UBS.  I think it would take about fifteen minutes and from there we could both decide whether it makes sense to continue talking along those lines.   Would that be ok with you?  What morning works best?”

Another approach you may try, and this might work better with a more established relationship, is to start with an email and follow up with a phone call.  The email could simply read like this:  “Bob, I am reaching out to people I know who either should be clients of mine or they know people who should.  I’ld like to buy you lunch this week and I think by the end of lunch we will know which camp you fall into.  I’ll call you later this morning to check your schedule.”   Then call and ask for the lunch appointment.

In both instances when you get the face time I suggest the following 4 Point Agenda:

First, position the conversation as exploratory.  Frame the discussion around these two points: One – “I want to share a little about my role at UBS and how I help other people like you”.  Two – “Since my focus is on helping other folks like you, I would love any insights that you may have from the “client” perspective that could help me in my practice”.    Set the expectation that at by the end of the conversation you will probably both have a better feeling of whether it makes sense to take the discussion further.  Then gain permission to proceed, “Is that ok?”

Second, be prepared with a concise and solid “Branding Message”.  Be conversational but confident.  Describe the profile of the client you can help the most.  (It might/should sound like them.)  Describe what you do, how you do it, the resources available to you, and the service aspects of your practice that you feel differentiate you and your team (communication!!!).  

Third, probe to understand how they currently have their financial resources/services organized and why they think that is the best way to do it.  Be careful how you approach this.  Don’t assume that they have problems.  Approach it as though you don’t expect them to have any problems.  The implied assumption is that “you are smart, you probably have a good handle on everything, in fact your insights could be very helpful to me as I make decisions about how to shape and run my practice”.  Ask permission to ask them about the firms they currently work with and their experiences with financial service providers both past and present.  “Would it be ok if I asked you a little about how you have things organized and why?”  Ask questions about each of the relationships they have with financial institutions/advisors/etc..  Think in terms of PAST, PRESENT, and FUTURE.

Here are some example:

PAST - “How did you get started with them?  Who introduced you? What attracted you to them? Where you considering other alternatives at the time? What were your criteria for selection?  What pushed them over the top? If you were to go through that selection process again, what would you do differently?  Who else have you worked with in the past that you no longer work with?  What caused you to move from that arrangement?

PRESENT – “What do you like best about how you have things currently organized?  What do you like least?  If you could change something what would that be?  What kind of client satisfaction score did you give them the last time they asked?  If they asked today what you say on scale of 1 to 10?  What do they need to do to be a ten? How do you pull this all together into one plan?  Is there one overarching plan in place?  Would that be important to you?  Would it make a difference in how you made decisions, or felt about your decisions if there was one plan that integrated all these pieces?”

FUTURE – “What would you like to see changed with regard to the financial products and services you use?  If you were in charge, how would it work?  What would cause you to move any of these relationships? Do you see anything like that on the horizon?

Fourth, you will need to set the next step based upon what you hear .  There are at least four potential outcomes.  One, you got a “qualified prospect”, that is someone who is dissatisfied with their current arrangement and willing to explore further with you.  Two, you got a “prospect”, that is someone who is not yet dissatisfied with their current situation but you can see (or suspect) that they should be dissatisfied based upon what you heard.   Three, you got a “long term prospect” someone who actually has a good handle on things.  And based on what you have heard it would be near impossible to unseat the current advisor unless something changed dramatically.  (They are probably dealing with an Advisor who is a Cannon disciple.)  Four, you got a “non-prospect”, someone who just doesn’t qualify for your practice.

So, let’s look at each of these.

1. Qualified Prospect – Go back to the points in your branding message and “bridge” or connect those to the points of dissatisfaction that they expressed.  Connect the next step to your planning process and set the appropriate expectation for what you will do, what the outcome will be and the time and information required from them.  Then close for the next appointment.
2. Prospect – Go back to the points in you branding message that differentiate you from the providers they currently work with.  Suggest to them that a deeper discussion around the details of what they are doing would be beneficial.  You can successfully position this around a “risk management” conversation.  This works really well when you discover that the prospect has their assets spread across multiple firms.  In that case you can describe how that often leads to greater risk because of three “risk factors” that are inherent in the multiple advisor approach.  First, often with multiple advisors there is not one overall asset allocation strategy.  So people often end up with an asset allocation strategy that is in appropriate for them.  Second, in the multiple advisor scenarios it is extremely difficult to manage an overall asset allocation.  It is difficult to know when you are out of range of the asset allocation targets and it is difficult to rebalance when assets are held at different locations.  Third, there is often not one person who is looking at how each individual investment, mutual fund, or manager interrelates.  This is critical to avoid overlaps or gaps in a portfolio. These three factors can contribute to greater risk of achieving the prospects goals or objectives.  Offer to review their overall portfolio; with out regard to firms they work with, but rather to look at the portfolio in its entirety to make certain that they are not exposed to these three risk factors.  Connect this next step to your process and set the appropriate expectation for what you will do, what the outcome will be and the time and information required from them.  Then close for the next appointment.
3. Long-term prospect – Be honest.  Let ‘em know your opinion, but check to see if there might be any changes coming.  “It sounds like you have a good handle on things.  Tell me, is there anything you see on the horizon that might cause you to rethink the way you have things organized?”  You may find out that their current advisor is nearing retirement, then what will they do?  That could move them into “qualified prospect” territory.  Otherwise go back to the points in your branding message that reinforce the things they find most valuable and then ask for introductions to people they know who should be working with someone like you.
4. Non-prospect – They could be a non prospect because they are not financially qualified or it could be because they are not someone who wants or values advice (you know, self directed and proud of it).  If it is because they are not financially qualified you can go back to the “profile of the client you can help the most” and how your practice is really aligned for people with those asset levels.  If they are in need of planning help, suggest an alternative that they may consider.  Perhaps a rookie advisor in you office.  If they are a non-prospect because they are not a good fit for the advice model, go back to the points in your branding message that demonstrate that you are in the advice business.  Congratulate them on their ability manage all of this and to have the luxury of the time required.  Go back to the points of your branding message that connect to how your practice is aimed at helping people who don’t have the time or expertise to do this for themselves, and who want and value advice.  In either case, remind them of the “profile of the client that you can help the most” and ask if they know of anyone they could introduce you to.

I hope this helps.  It may be more than what you were looking for, but it gave me the opportunity to think through this as well and now I have something to post to my blog.  

Thanks

Clark

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