One recent morning, before the market opened, a senior-level broker answered a call from a distraught client. It wasn't anything unusual. The investor had been calling in a panic almost daily.
But this call was different. The futures market had dropped 400 points the day before and the client wanted out. “He told me he couldn't take it anymore,” says the broker, a director of investments at a major wirehouse, who asked not to be named. “There was no way to have a conversation about it, so I did what he asked.”
By three that afternoon, the market had risen 300 points — and the same client called again, asking to get back in. “He was acting emotionally, but I had to respect his decision,” says the broker. “We're not trained to be psychologists.”
That's true. But in these days of gut-wrenching market volatility, it wouldn't hurt to know something of the human psyche.
Bruised by more than two tumultuous years of ups and downs, mostly downs, many clients are worried or just plain angry. “We're getting many more calls than normal from people asking what to do — ‘Do we get out? Should we reallocate?’” says John Moshides, president of Moshides Financial Group in Williamsville, N.Y. “And, they're less and less patient.” It's up to their brokers — that means you — to do whatever it takes to calm them down, set them straight or bring them back to earth.
It's not a trivial matter. Failure to soothe their souls can have disastrous results in the form of complaints, lawsuits and arbitrations. The number of arbitration cases filed with the NASD this year is expected to more than 7,300, up from 4,938 in 1998. And since there's usually about an 18-month lag between market events and claims filed, a bigger increase is sure to come.
Allan Dau, a recruiter for Cambridge Investment Research in Fairfield, Iowa, reports seeing a “significant” increase in complaints filed against brokers on their CRDs over the past six to 12 months. Says one senior broker at a major wirehouse who asked not to be identified: “Most clients are upset. And in this environment, we're all worried about getting sued.”
Clearly, it's more important than ever to address clients' fears before their emotions get out of hand. That means, no matter how irrational a client seems, you better keep your own reactions in check. If listening skills aren't your forte, brush up fast. They recently came in handy for Moshides.
He recalls the case of a divorced mother of two in her mid-40s with about $750,000 in assets under his management, all in equities. She called in a panic, asking to move 30 percent of her money into fixed income investments. So Moshides spent a good 10 minutes calming her down and educating her about the risks of making such a move at a time of low interest rates. “I tried to slow her down, help her think this through and think about working out a new strategy,” he says. The approach worked and the client changed her mind.
You'll be even better prepared if you keep a close watch on the latest stories in the media. Brokers report getting more panicked calls after a big story breaks. “I can tell you, from the conversations I have with clients, what CNBC did 30 minutes before,” says one broker. Moshides recently got an angry call from a client, asking why his money was in an index fund. Turned out, he had just been watching a television news program castigating index funds, and that he had no idea what an index fund really was. Moshides had a long talk defining index funds and the reasons for them — and the client hung up and calmed down, satisfied with the answer.
Nevertheless, the No. 1 way to handle distraught clients is to not give them the opportunity to get upset. That means stepping up communication — calls, e-mails, newsletters. “You have to stay on top of their emotions,” says Leo Pusateri, president of Pusateri Consulting and Training, a sales training firm in Rochester, N.Y.
Terrence Britt, operations manager of Excel Securities & Associates, also in Rochester, for example, usually meets with clients twice a year; he's increased that to four times a year. Kate Campbell, a financial advisor with Protected Investors of America in Kensington, Calif., has gone one step further. After September 11, she scheduled a group conference call for all her clients. Now, she plans to hold them quarterly.
One size does not fit all. Less seasoned investors who have never gone through major market turmoil may require a more vigorous preemptive strike than an old timer. “You know who needs to get a phone call first, whether e-mail would be better,” says David Bendix, president of The Bendix Financial Group in Garden City, N.Y.
It also helps to demonstrate empathy — “I understand how you feel. I'm in the same boat as you” — and to show you're intimately in tune with their specific situation. “Clients want to feel you're taking care of them, you understand their concerns,” says Campbell. She recently received an angry e-mail from a client, with the pithy question: “Aren't we hiring you to avoid this kind of thing?” So, Campbell immediately worked up a spreadsheet, detailing the client's investments and how each had fared, then called him to discuss the results and set up a face-to-face meeting to reevaluate his portfolio. The client was soothed by her response and immediately backed off.
Is all this handholding as time-consuming as it sounds? Yes. Campbell points to another long-time client, a legal secretary in her 50s, whose plan to buy her first home fell apart when her portfolio plummeted. Over the past month and half, they have had three to four hour-long conversations, plus frequent e-mails. “Revenues are down partly because we're not able to spend as much time seeking out new business,” says Britt. “We would hope the need for this increased communication would abate in the near-term.”
At the same time, all this client-coddling spells an opportunity. Moshides has nabbed at least a dozen new clients in the past 12 months who were dissatisfied with the service provided by their previous brokers. “People are looking for advice right now,” he says. “If they're not getting it, they're going to look somewhere else.” Play your cards right and that new advisor will be you.
