If you are an investment advisor, you actually want to do the opposite of this. But according to a recent article by Bob Veres in Advisor Perspectives, client anxiety is being turbocharged for you:
…the primary challenge for investment advisors, financial planners and money managers today, which is different from the challenges you faced in the past, is the sheer amount of attention that investors are now able to pay to the ups and downs in their portfolios…
Put in its simplest terms, your clients are being driven to an unbalanced mental state by the sheer amount of information and opinions that are piling into their awareness at increasing speed, and nobody has a vested interest in telling them that paying attention is highly unlikely to improve their investing lives, and may well be sabotaging their returns.
In point of fact, what clients see and hear in the mainstream financial media is noise, not trend. Trend is only apparent when you step back and examine markets from a distance. Noise tends to reinforce their worst tendencies toward emotional asset allocation, especially when one of the articulate doom-and-gloomers shows up on CNBC. By the time they are finished talking, your clients are ready to buy canned goods and ammunition and lock themselves into a bunker.
This is not very helpful. The more clients pay attention to the ups and downs of the market, the more their emotions are engaged. The more their emotions are engaged, the worse their returns are likely to be. In large part, your job as an advisor is to protect them from the noise. You have a couple of options in this regard.
1) You can try to get them to ignore the noise by telling them how useless it is. This is not likely to be successful.
2) You can try to get them to ignore the noise by distracting them. If you can convince your client to read only the sport pages (one of my common suggestions) or to take up trekking in Nepal, they might not pay enough attention to become anxious. Clients who are busy with work or families often do a good job of this on their own. In many cases, even a suggestion made jokingly to take up birdwatching or to start building model ships helps clients understand that their emotional engagement is more likely a hindrance than a help.
3) You can try to replace the noise with more productive content, like Systematic Relative Strength, for example. There are no doubt other news outlets and financial sites that might help to keep a client focused on the longer-term trend and on methods that might actually help their performance rather than hurt it.
Anything that you can do to defuse their anxiety and to reduce the behavior penalty on their returns is likely to be as profitable as any investments you can make in their account.
