What are the best ways to set realistic investor expectations?

I'd say 90% of potential new clients understand the trade off between risk / return and diversification - not having all your eggs in one basket. Volatility and compound interest are harder concepts to explain without digestible examples or case studies. What I have found the most difficult education pieces is the risk / return potential of different asset classes particularly when a potential client has had a poor experience with a Financial Adviser in the past, and or a certain asset class, generally shares the only thing that sometimes works is drawing on historical cumulative charts going back 50 plus years. Sometimes if the potential client is 80 years old, get the 100 year plus chart out!

Show people the typical fluctuation on their invested dollars, the estimated annual return in dollars (not guaranteed), and what the worst case draw down looks like. Example: $1 million invested. $50k/year estimated return after fees. Worst case draw down $700k. Normal fluctuation (most of the time) $825k to $1.2 million on any given day. Also, tell them the time horizon for the investment. In my example above, it is to be held for at least 7 years. Disclaimer: Above example is hypothetical and not guaranteed, for educational purposes only. Oh, and keep them out of crypto.

Educate Your Clients: 1. Understand Their Goals: Begin by thoroughly understanding your clients' financial goals, risk tolerance, and investment time horizon. This will help tailor your communication to their specific needs. 2. Explain Investment Basics: Ensure that your clients have a basic understanding of investment concepts, such as risk and return, diversification, and market volatility. This knowledge can help them make more informed decisions and manage their expectations.

The first form of educating your clients is helping them understand themselves, and/or their own situation. Clients need to be aware of their constraints and their risk appetite and tolerance. Understanding products and rules around investment vehicles can be a futile practice if clients don’t understand themselves. Indeed clients do need to know how different investments vehicles work in order to have expectations that are aligned with the possible movements of the market s throughout the investment period. This can also assist condition clients to behave or react in a suitable manner and not be impulsive. Knowing how the markets normally behave can give clients peace of mind during the times that markets are volatile.

Uma das maneiras de alcan?ar êxito na consultoria dos nossos clientes, parte do princípio de colhermos informa??es sobre a parte e também compartilhando informa??es de forma concisa. Algumas cren?as s?o desmistificadas no estabelecimento de um diálogo sincero visando ajudar o cliente a alcan?ar os seus objetivos.

Communicate Regularly and Transparently: 1. Set Clear Expectations: Clearly communicate the potential risks and rewards associated with different investment strategies. Be honest about the fact that all investments carry some level of risk, and returns can vary. 2. Regular Updates: Provide regular updates on the performance of their investments. This helps in managing expectations over time and reduces the likelihood of surprises. 3. Explain Market Conditions: During periods of market volatility, communicate with clients to explain the reasons behind market movements and reassure them about the long-term nature of their investments.

Uma rela??o bem definida no início do processo de consultoria gera confian?a através da transparência. Ao pontuar na contrata??o da consultoria os períodos, prazos e formas de presta??o de contas através da demonstra??o do portfólio.

Every client states - as their highest priority - finding an advisor they can trust. The most effective way to build trust is to state clearly the service standards a client should expect (quarterly meetings, access to their advisor via email, immediate response to phone calls, etc.) and then meet those standards without fail. No trustworthy advisor can set realistic expectations about profits - predicting is very hard, particularly about the future. Every trustworthy advisor sets clear expectation on client service and communication and meets those expectations every time.

One may need to communicate with the client whenever there is a lot of noise around the markets movement. It is not easy for clients to differentiate between noise and signals. It is important to keep reminding clients of the goals that were set at the beginning and help them not seek to make changes whenever they hear negative noise about the movement of the markets. At times there are signals and there are material changes in clients lives and communicating regularly will help make necessary changes.

Maintaining regular and transparent communication is crucial for building trust, fostering collaboration, and ensuring everyone is on the same page.

Manage Emotions and Biases: 1.Prepare for Market Fluctuations: Educate clients about the normalcy of market fluctuations and that short-term volatility is part of the investment journey. Encourage a long-term perspective and discourage reactionary decision-making during market downturns. 2. Behavioral Coaching: Be aware of behavioral biases that can affect decision-making, such as fear, greed, and recency bias. Provide guidance and support to help clients make rational decisions aligned with their long-term goals. 3. Risk Tolerance Review: Periodically reassess and review clients' risk tolerance, especially during major life events or changes in financial circumstances.

We all have biases that are hidden from our awareness and it will take someone else to assist us not succumb to the negative influence of such biases. Relevant statistic should always be considered if we are to avoid biases and avoid being impulsive as a result of unregulated emotions.

Remember, by collectively managing our emotions and biases, we contribute to a more positive and inclusive work environment. This, in turn, enhances our ability to collaborate effectively and achieve our shared goals. Create a safe space where team members feel comfortable discussing emotions, biases, and concerns without fear of judgment. Acknowledge that everyone has biases. Be open to identifying and challenging your own biases. Cultivate empathy by putting yourself in others' shoes. Actively listen to colleagues, understand their perspectives, and consider the impact of your words and actions on their emotions.

Negative emotional reactions from clients to downturns in their portfolios is to be expected and allowed for - if not encouraged. We are in a relationship where we wear a number of hats - including therapist when necessary. Advisors need at least two skills. First, communication skills to hear and address emotional client responses. Second, investment skills to build protection, reliability, and shock absorption into a portfolio. With sufficient positive built into an overall negative result the advisor gives their client the opportunity to see light within the clouds. That buys time to allow the portfolio to perform well - over the long term.

Being smart is an art, but setting smart goals is a science. The goal setting processes or methods that lack any of the five aspects of SMART goals should be avoided. Setting SMART goals can appear easy, however, in the experience of many of my colleagues, it is one of the areas that most clients struggle to do well and it only gets better with practice. Therefore it is important to not assume that clients can easily set smart goals by themselves.

SMART sounds, well, smart, but in the real world they mean very little to my clients. Reaching financial goals - for most folks - takes commitment, discipline, and time. The only goals that allow those ingredients to come together for my clients are the ones that are most personal/emotional to them. Once they've made a personal/emotional commitment reaching their goals becomes important and doable. Until they've made that commitment SMART won't do it.

One of the biggest lessons I have learned with benchmarking is to always stress test your benchmarks and triangulate your data, meaning implement multiple relevant data sources to create or evaluate your benchmarks. in addition, don't let your data dictate your benchmarks. Let your benchmarks evaluate your performances or forecasts and don't use benchmarks to validate them.

Benchmarks should not solely be compared to indices. Investment advisers together with their clients need to compare the clients’ portfolio performances to the clients’ individual goals. It is a big mistake to neglect the clients’ constraints, risk tolerance and appetite when determining whether the investment goals were reached.