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How to Communicate the Value of Behavioral Coaching

One of the most valuable services you bring to the table as a financial advisor is your ability to help clients identify biases and avoid making rash decisions based on fear or other powerful emotions. According to a study by Vanguard, this behavioral coaching alone accounts for as much as half of the value you add to your client’s portfolio. 

As a financial advisor, that might not come as a surprise to you. However, a Morningstar study found that clients rarely recognize how much value your behavioral coaching adds. Most investors rank it near the bottom of their priorities when looking for a financial advisor. If it’s one of the most valuable services you can provide, why is it so often underrated by clients? 

The causes are likely threefold. First, investors don’t realize how much of their decision-making is influenced by emotion. Second, investors don’t fully understand what is meant by “behavioral coaching.” Third, financial advisors take for granted that clients do understand the meaning and value of behavioral coaching.

The good news is, as a financial advisor, you’re in the perfect position to address all three of these causes. In this article, you’ll find some helpful tips for clearly communicating what behavioral coaching is (without hurting your client’s ego) and how much value it adds.

5 Steps to Better Communicate the Value of Behavioral Coaching

This is a tricky subject to broach with your clients because it’s something that they might be sensitive about. Calling attention to someone’s blind spots or emotional decision-making can make them feel insulted or vulnerable if you don’t handle it well. 

#1 Define Behavioral Coaching

The first step to communicate this value is to define what exactly you mean by behavioral coaching. In practice, it can take several different forms, depending on the needs of each client. Some services that fall under “behavioral coaching” include:

  • Developing detailed and systematic investing and spending plans to minimize the amount of active decision making a client has to do.
  • Conducting systematic reviews and portfolio rebalancing to eliminate inefficient assets or securities.
  • Helping clients recognize evidence of bias in their asset allocation and helping them rebalance to eliminate the effect—or at least minimize it in cases where the client is a little stubborn.
  • Reassurance and readjustments in response to volatile markets.

When defining it for your client, it helps to relate it to their specific case. For example, say you have an overly cautious client who tends to err on the side of keeping way too much cash in their portfolio. You can show them how your suggested asset reallocation can provide them about the same level of risk they’re currently exposed to while increasing their returns by converting some of that cash into low-risk securities or by shifting their current investments into lower-fee ETFs to increase returns without exposing the client to more risk.

All of this falls under the category of “behavioral coaching” because this client’s overabundance of caution led them to build a conservative portfolio that didn’t effectively maximize their returns. 

#2 Frame the Topic Carefully

The biggest challenge you face in communicating the value of behavioral coaching won’t be in helping clients understand what behavioral coaching means. Instead, it will be helping clients recognize that it’s a service they could benefit from.

If you’re not careful in how you frame the subject, clients might become defensive or feel like you’re insulting their ability to make smart financial decisions.

The truth is we all have biases that can affect our decision-making. As easy as it is to point out inefficiencies or blind spots in someone else’s portfolio, it can be challenging to find them in our own. 

Make sure you frame this service more in terms of your ability to offer an objective, outside opinion. Be careful that you aren’t making the client feel inferior or incapable simply because they might have unrecognized biases.

#3 Provide Numbers

The best way to drive the point home is with real numbers. Whenever possible, include comparisons to show the differences in potential returns between two or more portfolios. For example, an aggressive growth investor might be holding on to a particular stock, despite all the red flags that this stock is more risk than it’s worth. 

Suppose you can show them a similar investment that offers comparable growth potential with less risk. In that case, you’ll have better luck convincing them to make the change than you will by just trying to explain how this is evidence of the endowment effect.

For existing clients, provide periodic reports detailing what kind of rebalancing and adjustments you’ve done to improve their portfolio’s efficiency and returns. For clients who are receptive to this kind of advice, you might even include details about which type of biases they’re most prone to and how they can be more alert to them.

#4 Open Up About Your Own Experiences with Biases

To better emphasize that having biases or being tempted to act on fear or other powerful emotions is perfectly normal, you can offer examples from your own experience. If you have an example where you gave in to fear or, better still, one where a fellow advisor had to point out a blind spot in your portfolio, use those examples.

Again, the idea is that biases are human, and it’s not that this client is especially irrational. It’s just that it’s easier for you, with your outside perspective, to recognize biases in others than it is for anybody to identify biases in themselves. 

The key is to reassure your client that behavioral coaching is something you do for all clients, even the most financially savvy ones, and provide concrete examples of what coaching looks like in action.

For more tips and ideas to better communicate the value you offer your clients, check out my post on how to talk about the value of financial advice!

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Our founder, Anand, has two decades of experience in the financial advisory world. As he says, an experience that spans from coffee to compliance. With Pulse360, he set out a vision to make financial advisors at least 50% more productive. In addition, we know the advice you provide to your client is valuable and we want to help make it easy to communicate and capture your value. Check out how we can help your practice document and communicate your advice in half the time.
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