In the past I’ve written about the literal value that considered and proficient financial advice can add to your portfolio.
But there is one value that cannot be quantified in financial terms.It’s a value that you really cannot put a price on.
It’s the value that comes from your adviser protecting you from making a big financial mistake, like selling out when the markets get scary.
The value of insight versus the price of fear
Carl Richard’s from Behaviour Gap phrases it thus:
“Your ability to walk [your client] in off that ledge might be the single most valuable thing you provide over the course of the 20-40 years you work with them.”
I was reminded of this recently when I was asked to recap on the most interesting or challenging question I’d been asked in 2016, and how I’d answered it.
I was contacted by a client just ahead of the US election results being announced.
My client was very concerned that whatever the outcome, it could have a destabilising effect on the markets in which they were invested.
My client wrote:
“I have been following the Clinton / Trump 'soap opera' closely and this is a far more uncertain situation than seen previously. The markets bounced up (best rally before Election Day since 1932) on news the FBI had decided not to investigate the latest Clinton emails but a Trump win could (in the short term) have the opposite effect.”
Because I don’t have a crystal ball and couldn’t call the election result, I gave my client the best advice I could as their financial adviser:
My 'perfect' advice to you in this situation is to continue with your long-term investment programme, in a way that is indifferent to the US election timing.
There are millions of people out there who are hoping to time this, and over the last 15 years I've not witnessed many people get it right, or even nearly right in similar-esque situations…
I suspect we will see a further 'relief' rally if Clinton wins (although this is by no means certain) and it could equally be positive (although less likely) if they go for Trump.
The problem in trying to time the market is that we're betting on:
1) The election outcome;
2) The market response to a given outcome; and
3) The timing risk of when to purchase.
I don’t think any of my clients should take any of these risks, let alone all three.
Instead, I would strongly advise blocking out the noise and continuing with your investment path.”
The unquantifiable value of empathy
My client took my advice.
They switched off the news, left their indexed, well-balanced portfolio alone, and overcame their fear and desire to escape the market ahead of the expected turbulence.
I can’t quantify the positive financial impact of my client’s decision, because there are too many variables, such as:
- At what point they would have bailed out;
- When they might have been confident enough to buy back in;
- How long before they once again succumbed to scary market movements.
But I do know that the value I provided was to fully appreciate my client’s concerns by listening to them, humanely empathising with their fear, yet remaining calm and level headed.
The single most valuable thing I do every single day of my working life is to keep my clients’ financial success on track by protecting them from one of the strongest psychological triggers of all - loss aversion.