Bad Advice: Mistakes Your Clients Will Make And How To Coach Them Through It

Football season is in full swing.  Regardless of the level — high school, college, or NFL — a good coach can make a huge impact on the gridiron. His expertise and encouragement can motivate players to rise above setbacks, dig deep inside themselves, and turn a potential loss into a “W.”

The same is true in our profession. Your job title may be financial consultant; but you’re an investment coach. Your clients are the players, and the markets are your playing field.

In investing as in football, players sometimes do things they later regret. They get unnerved and forget the game plan. Even veterans make poor decisions based on bad advice. They rashly act on impulse.  Both footballers and investors occasionally make matters worse by overreacting to make up a points deficit. Some players in both football and investing are just starting their careers while others are nearing the end of their playing days.

But there is one constant in all those scenarios. Regardless of the situation and conditions, no matter how much (or how little) time remains on the clock, regardless of the fumbles that have been made and the yardage lost, the coach is always there urging his players to look beyond what has happened and leading them toward what still might be.  

You see where I’m going with this. Some of your clients may be having a rough season. Perhaps they’ve made bad choices. It could be they were steered in the wrong direction by bad advice. Maybe they even feel like throwing in the towel.

Let’s say a client has received unsound advice or is about to make an unwise financial decision that could impact their lifestyle. As their coach, what do you do?

You start by teaching the client how to spot the red flags that often accompany ill-considered actions. Many investors give credibility to advice based on their relationship to the person who offered the suggestion, — such as a relative, a neighbor, or an esteemed colleague. They think, “I like and respect this person, so their recommendation must be OK.”

As their coach, it’s your responsibility to teach them to recognize suspect financial advice and the red flag phrases that often accompany such faulty guidance.

For example, a would-be investor should grow skeptical whenever they hear, “This investment has little to no risk.” As wealth managers, we know all legitimate investment opportunities come with risks. It’s our responsibility to make sure the client understands that.      

Here’s another bit of bad advice that friends, relatives or co-workers might share with your clients: “Choose managed funds.” Sure, actively managed mutual funds can be a viable option for some investors, and they have a proper place in many portfolios. But successful management is not one-size-fits-all. For example, certain funds can be expensive. Because they have worked for someone else doesn’t necessarily mean they’re a good fit for your client’s individual goals.

Another bad bit of bogus philosophy: “Your home is an investment.” Sounds great, doesn’t it? Especially when the client hears it from someone they hold in high regard. While many people do have equity in their house, as their money coach it’s up to you to explain why something that costs them money each month through a mortgage payment without producing income is a liability instead of an asset, and why their home itself should not be part of their retirement investment strategy. 

By making your clients aware of these well-intended but potentially damaging pieces of “helpful advice,” you can steer them clear of risky financial territory.

Remember, our business is built on relationships. Making it successful means investing one-on-one time with each client. Just as a coach holds practice games and training sessions with his team, the time you spend with your clients not only helps you devise a strategy to overcome their past mistakes, allows you to share the knowledge and insights that can go a long way in preventing them from making new missteps.

Your pep talks and encouragement can turn investor defeatism into optimism. Your guidance and direction can instill reassurance and trust and allow your clients to play the personal finance game at their peak performance level.