Getting clients to listen and understand

01 April 2017 Purple Group

Justin Pearse, Head of Client Engagement at Purple Group

Justin Pearse, Head of Client Engagement at Purple Group

There is an old adage about leading a horse to water that I am sure many financial advisers rely on regularly when their clients won’t listen.

You give them all the charts and the statistics and the research and the advice, but you can just not make them ‘drink’.

Behavioural science
Academics in finance and economics are quick to explain how investors should behave.

Obviously they are in it to maximise wealth, so when they get advice – from people they are paying – you would think they would take it. But there is something that the capital asset pricing model and the efficient market hypothesis do not consider and that is human emotion and irrationality.

Easily explained
These concepts can easily be explained by psychological theories though; and so the field of behavioural finance was born combining psychological theories with economic and financial theories to try and help us understand why people make irrational financial decisions.

We have all seen them; investors who cash in when the markets crash, pensioners spending their last cent on a get rich quick scheme, late-night TV watchers ordering the complete DVD box set on how to go about making millions by trading in forex.

These decisions are all founded in greed and fear. If we can overcome those emotions, we should have no problems growing an investment of any size over time. But how do we convince our clients to hear what we are saying?

Build trust

Give your clients some credit; encourage them to do some research and listen to what they have to say about it. You might actually learn something.

Act in their best interest; so many people believe their brokers are earning more money on their money than they are themselves. Be sure to do what is best for your client and not what will earn you the most.

Provide holistic advice

Help clients with their budgeting; look at the bigger picture. “Perhaps that extra R1 000 a month would be better spent on bond repayments or, let us look at what you do with your next salary increase.” That is what clients want to hear from their financial advisers. Suggest a small, self-managed portfolio as part of their overall investment strategy. There are very easy, cost-effective ways for South Africans to invest directly in equities.

Help them to get started and in that way they will be able to see what is involved in building wealth and they will feel like they are part of the process.

Keep it simple

Charts and spreadsheets do not work for everyone. In fact, many (if not most) people feel overwhelmed by them and simply dislocate from the process. This dislocation can easily turn to bitterness and mistrust.

Introduce your clients to market commentators who explain the process well. There are loads of blogs and podcasts out there that do this. Do a bit of research and pass on your findings.

Be transparent

Demystify the process. Asset managers, stockbrokers and financial advisers have a tendency to over complicate things and then charge their clients to help them navigate the quagmire. It is really not that difficult; do not complicate issues.

Declare all fees and costs. Most investors are happy to pay for advice and assistance, but they want to see value. Let them know exactly what they are in for, explain their options, and show them how it will affect their investment over the long term.

Seeking resiliance
Today’s consumer has access to more information than ever before, and emotional descisions are rife.

The only way for rationality to prevail is through conversation. Building trust and strong relationships with your clients will help you to have those tough conversations without allowing emotions to destroy everything you have built up. And who knows, one or two of them might even listen.


Quick Polls


Do you think the 21-day lockdown declared by President Cyril Ramaphosa will contain the coronavirus outbreak?


Things will only get worse
Only time will tell
A E fanews magazine
FAnews April 2020 Get the latest issue of FAnews

This month's headlines

D&O claims… the devil’s in the detail
The importance of intermediated insurance
Markets in the wake of the COVID-19 pandemic
COVID-19 and your client's retirement savings
Zooming into RAs and tax-free savings
Subscribe now