Advisor Inquiry – What to Do When a Spooked Investor Wants a Portfolio Review

On a recent coaching call with an advisor in The Behavioral Finance Network, he mentioned that a concerned client reached out and asked him, in light of the global conflicts, to review the portfolio. He asked me my thoughts on what he should do. Should he review the portfolio and get back to him with comments, basically saying “don’t worry”? Or should he use another approach? What would you do in this situation?

Is the Client the Puppet Master?

The first question I asked this advisor is whether he planned to review the portfolio before the client inquiry. The answer was “no.” In this case, perhaps the most natural thing is to placate the client, after all we are here to serve clients, by performing a review and talking to the client about it. But that could have unintended and unconscious consequences.

It could set a pattern that every time the client is concerned about something, the client requests an unnecessary portfolio review. After a few instances, the relationship has been redefined. You become the puppet and the client is the puppet master – pulling your strings whenever concerns arise.

Killing Multiple Birds with One Stone

In this situation, I suggested that the advisor answer the client not by doing a portfolio review, but talking about how robust the portfolio is…and why a review isn’t needed. This not only gets at the real heart of the concern, “Is my portfolio OK given what is going on?” but it also proactively tackles future concerns. Oftentimes advisors put together portfolios without discussing the robustness of the portfolio to weather the certain storms to come. If we don’t explicitly and regularly remind them, you can’t blame clients for not believing in the strategy.

In other words, it is important that we explicitly tell clients that we do not assume calm, predictable markets. We do not assume world peace. We do not assume scary things and surprises won’t happen. To the contrary, we assume all of those things because they have always happened. These portfolios are built to last through geopolitical tensions, wars, recessions, and various uncertain economic environments.

The Only Real Concern We Have

And then I went on to recommend that the biggest concern the advisor has, despite high inflation, a vitriolic election season, and geopolitical tensions is how his clients will respond to these undesirable events. Will they be able to ignore the noise and practice discipline to the strategy? We are confident in our portfolios and their robustness. We transform the concern from something not controllable (will there be war in the Mid East and what will market do) to completely controllable – how will the investor respond.

James Clear, author of Atomic Habits, instructs us that

Arguably the most important skill is controlling your attention…More than anything else, controlling your attention is about being able to figure out what you should be working on and identifying what truly moves the needle.

And what truly moves the needle when it comes to investor performance is their behavior!


(c)2024 Behavioral Finance Network