However, investing is for the long term, so active reviewing of performance does not need to be a daily activity. In fact, fixating too heavily on a portfolio value, without the context of the plan, may lead to worry and rash decisions.
Therefore, along with access to up-to-date portfolio valuations, it is crucial to be transparent about the client’s plan and whether they are on track to meet their financial objectives. Reiterating that a plan is in place, referring to a forecast, and highlighting whether they are on track in real time reduces short-term panic.
Support the client’s relationship
When people are highly intolerant of uncertainty, they do not like to be in situations where there is ambiguity about what will happen in the future. In such circumstances, they can become anxious and make impulsive decisions that harm their long-term outcomes.
We all have different abilities to tolerate uncertainty, and for some any degree of uncertainty can have detrimental effects on their wellbeing.
A transparent relationship with a trustworthy adviser can help, as can encouraging such clients to embrace uncertainty and use healthy strategies to manage their emotions when going through challenging periods.
Advisers should also help clients let go of the need for certainty, focus on what they can control, reflect on past successes, and delay making important decisions when emotionally charged.
Ensuring that clients receive information that is timely, understandable and relevant to their specific circumstances is also key in times of uncertainty.
Build resilience and self-efficacy
It has been proposed that better financial decisions and the ability to connect financial knowledge with effective action stem from financial self-efficacy: an individual’s perceived ability to manage their finances.
Those with high financial self-efficacy retain a sense of long-term control over their financial situation when markets experience volatility.
They have lower levels of financial stress, a more optimistic view of their financial situation, and feel less at risk despite disrupted income, unforeseen experiences, or unsuccessful investments.
Having self-efficacy over a particular area in life can be considered as one of the factors that helps promote resilience, as individuals retain their sense of control and confidence when dealing with specific life stressors.
To promote self-efficacy, clients should be encouraged to manage and think about their finances on a regular basis.
Money is still not a topic that is often discussed between people, and it can be a challenge to educate communities because of personal biases and individualistic views on money and the industry more widely.
However, when we consider an individual’s financial resilience, then financial knowledge is key. That makes client education an important part of the role of the adviser.
