Behavior-Based Advising: Train Your Clients to Make More Money

train your clients to make more money

Timing. Selection of investment products. Identifying what the next big performer will be in the stock market. Do the bosses in your big firm focus on these aspects of client portfolios to achieve success? Do you wonder why they seem to have little effect on your client’s overall financial situation?

There is a Nobel Prize-winning study that was conducted in 1986 that many in our industry seem to forget about. This study found that over 90% of an investor’s return is derived from what they already own while only 10% is affected by variables such as stock picks and timing of the market. This would lead you to believe that most planners focus on the 90% as a way to lead their client to a more successful financial future, but you would be wrong. Almost every big financial planning firm encourages their advisors to focus on the 10%. Why? Because to focus on the 90% would mean they would need to build an advice-based business, and that’s just not the big boys’ way.

When you decide to start your own financial planning business and become an advice-based consultant, everything changes. You can stop worrying so much about the 10% and start focusing on what really matters—the behavior of your clients. Because that’s what the 90% is all about. 

Client behavior is the determining factor when it comes to underperforming their own investments (which they tend to do at a rate of 6% annually). Clients behave inappropriately with their assets because they listen to all the noise in the industry and the news. They buy a fund when it’s hot and sell it when it falls behind. They jump out of markets or bounce around, chasing the cheaper or sexier options. They listen to that guy who guarantees them that the newest product will blow them away.

And why do they do this? Most of the time, it’s because their advisor told them to. Traditional advisors are always trying to ‘outsmart’ their clients and find techniques to get them to jump when they tell them to. This keeps the commissions rolling in, which is what’s important, right?

WRONG. We shouldn’t try to outsmart our clients and we should NEVER be focused on how much we make off certain products. We should be taking care of our clients and guiding them to make the decisions that will secure their financial futures. Your clients need to be understood. If they make decisions based on emotion, you need to know that and be able to counsel them accordingly. If they jump out of markets based on fear or because they can’t tolerate risk, you need to address those issues and not just the actions that result from them.

As we’ve discussed in previous blog posts, an advice-based financial planner resembles a therapist more than he does a salesperson. Most of the time, your clients don’t need to be told what products to buy or stocks to pick. They simply need to understand why they make the financial decisions that are causing their portfolios to underperform—and how to change it.

If you have not made the jump to being a fee-based advisor, it’s likely that you’ll get a lot of push back from your managers if you try to give your clients behavioral counseling. The industry as a whole just doesn’t get it. That’s why it’s important to start laying the groundwork to launch your own business. Both you and your clients will benefit greatly from the move.

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Patrick Tucker

Patrick Tucker, owner of True Measure Wealth Management and founder of True Measure Financial Advisors, has over 20 years experience in the industry and has spent the last 15 years learning the ins and outs of the fee-only advisory business. He's spent over $500,000 finding mentors, studying consulting businesses, taking courses, studying the soft sciences, running trial and error experiments, and learning how to be an entrepreneurial financial advisor. He's simplified this into an easy to use and replicate blueprint for anyone who is entrepreneurial-minded and is tired of the sales culture. Patrick has been able to acquire over $140 million under management with little to no money spent on marketing.