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In James Clear’s Atomic Habits: Tiny Changes, Remarkable Results, he lays out the science of how humans form habits. It’s a great guide on how to break bad habits and replace them with better ones, but one of the concepts that struck me most was the power of habit.
Once something becomes a habit, it’s so automatic, we don’t even really think about it. That’s what makes them so useful for maintaining healthy routines. As a financial advisor, that “automation” can make you a wizard with finances — but it can also make it easy to take for granted where your clients are at in terms of understanding the financial world.
So, this blog will dive into why it’s so important to put yourself in your client’s shoes and how you can apply the concepts of Atomic Habits to help them become more confident in their financial knowledge and in your service as an advisor.
The recent market downturn is the perfect example of why the habits that make you a great advisor can also make you take for granted how much your clients understand about what you do. No matter how much a client knows, in theory, that markets can go down and volatility is always a risk, it often doesn’t really sink in until they experience their first market downturn.
As a financial advisor, you’ve either already been there and done that or you’ve studied past market downturns enough to understand what’s happening right now. From your position of expertise, it can be easy to forget how scary and uncertain volatile markets like this one can be for clients who’ve never gone through it before.
That’s why it’s more important than ever in markets like these to show empathy and understanding when you communicate with your clients. Don’t just say “everything is going to be okay.” Explain how this volatility is impacting their portfolio and what strategies you recommend for weathering the storm. Even if your advice is to just hold and wait it out, explain why.
You might also share a story or two from your past experience with market downturns and how you got through it. Real-world examples like that will not only reassure them that it is possible to make it out the other side okay, but that you, specifically, have the skills and knowledge to help them through this rough period.
Even in calmer markets, taking your own financial habits for granted can create communication gaps that leave your clients feeling lost and overwhelmed. Some clients don’t ask a lot of questions during meetings, for example. But just because they’re sitting there, nodding their heads, doesn’t mean they fully understand what you’re talking about.
Finding ways to reinforce that information without making your client feel insecure or stupid can go a long way toward helping them make better financial choices and just generally have a better grasp of exactly what you’re doing for them.
Another major takeaway from James Clear’s book is the importance of feeling prepared and confident in your plan when building new habits. Before a habit becomes automatic, it takes consistency and conscious decision-making to make it stick. In the process, it’s easy to lose sight of why you’re doing it or whether it’s even worth bothering.
The same thing is also true for clients: it’s hard to stick to a financial plan for the long haul when they may not fully understand why it’s the right plan to follow or whether it will really even work. That’s where you come in.
By using clear communication and making sure they understand your advice and feel confident in the financial decisions you’re helping them make, you can not only strengthen the trust they have in you, but increase their odds of achieving their goals.
The more easily they can grasp a concept, the more confident they’ll feel in making a decision about it, and the more likely they’ll stick with it. The best way to make complex topics clear and simple is to relate it directly to their situation.
Instead of running through the benefits or reasons for your recommendation, point to exactly which goal it will help them achieve and why you think it will help more than any other options available.
Then, skip over any technical details that aren’t really relevant to their decision. You don’t need to itemize which tax credits or incentives apply, instead, just explain how much more tax efficient it will be. Then, fill in extra details if and when they ask for those extra details.
Take a proactive approach to your client communications. You don’t want to flood their inbox with emails but taking the initiative to send agendas before every meeting and recaps after as well as annual reviews each year goes a long way.
Your client will have a detailed record right in their inbox of everything you’ve talked about, every recommendation you’ve made, and how much progress they’ve made toward their financial goals.
When the market turns, reach out to your clients before they reach out to you to remind them of what you’ve done to brace for worst-case scenarios like this and reassure them that they’re not on their own.
When making a financial plan for your client, you’re generally focusing on how to help them succeed in their financial goals—and that’s exactly what you should be doing. But many of these goals take decades to achieve and clients are prone to getting cold feet now and then along the way because it just feels so far off.
That’s even more true after unexpected life events like a lost job or lost spouse.
To help your client feel confident enough to stick to the plan, no matter what happens, consider building in some “worst case scenario” provisions for how the client can adjust and regroup after a major setback. This will make them feel prepared for whatever comes and reassure them that you’re the kind of advisor who will help them through the ups and downs that life brings.
When anxiety runs high, it’s easy to make emotion-driven decisions about money if you don’t have the financial knowledge to resist emotional thinking.
When talking to anxious clients or clients who are otherwise letting emotions get in the way of making sound investing decisions, remind them that emotional investing can cost around 5% on average in lost returns—and more depending on how rash the decision is.
But also remind them why the financial plan and investment strategy you developed together address their anxieties and concerns.