Navigating the Financial Coaching Game: Value, Control, and the Advisor’s Role

Ever paused to consider the true value of a coach? The essence of their worth often revolves around outcomes. But here’s the catch—these outcomes often hinge on the players, not the coach. If a golfer misses that crucial putt, is it the caddy’s oversight or the golfer’s miscalculation?

In our high-paced, result-driven world, the buck often stops with the coach. A fresh perspective, they say, can change the game. But think about it: a professional athlete already has the skills. The coach isn’t there to teach the basics, like swinging a golf club. Instead, they mold the mindset, cultivate culture, and set the rhythm. It’s more psychological than tactical.

Sounds a bit like the life of an advisor, doesn’t it? 

Clients, or as we might humorously call them, our “bosses,” gauge our success predominantly on performance. Yet, market returns have their own rhythm. History has shown if you hang onto the S&P 500 for a decade, you’re on the winning side 98% of the time.

However, the real game plays out between year 0 and year 10. Just like in sports, the value an advisor brings often depends on their unique perspective and philosophy. And just as a good coach gradually molds a not-so-great team, the right philosophy can gradually enhance financial outcomes.

Much like how a game’s outcome rests with the players and not the coach, our performance, to a large extent, is dictated by market forces beyond our control. So, what’s in our arsenal? It’s the narrative, the philosophy, and most importantly, the psychology. And that’s where our true value lies—shaping mental landscapes.

Advisors who fixate on performance tread on shaky ground. In contrast, those who prioritize client fulfillment lay the foundation for a steady career. And just like in sports, the game plan should revolve around building a resilient team, not just chasing fleeting championships.

Now, let’s examine our playing field—the markets.

Markets have their own heartbeat: a 5% dip roughly every year, with about 13 months for recovery. A 10% fall every 33 months, taking around 23 months to rebound. And those unnerving 15% slides? Once every 4.5 years, needing about 32 months to bounce back.

Dalbar’s QAIB highlights a stark gap between investment and investor returns, often stemming from our own behavioral pitfalls.

When we speak of biases, it’s not just a buzzword. It’s a reflection of the innate human tendencies that, while helping us in many situations, can often hinder our investment outcomes. Let’s break it down:

  • Loss Aversion: Simply put, we feel the pain of losses more deeply than the joy of equivalent gains. Think about that 5% drop in the market. Even if it recovers in a year, many investors are left with an emotional scar that lasts even longer. You might have had clients who’ve said, “But we lost so much!” even when the recovery is evident. That’s loss aversion in action.
  • Recency Bias: Here, recent events cloud our judgment, making us believe that what’s happening now will continue indefinitely. You’ve probably had clients panicking when the market is going down, convinced it will never rise again, even though history says otherwise. Charts and data might not always alleviate their fears immediately, but it’s a bias we must always be aware of.
  • Herding Behavior: Ever heard the saying, “If all your friends jumped off a bridge, would you?” In investing, the answer for many is a resounding “yes.” If everyone’s selling, the fear of missing out on an exit can cause a stampede. As an advisor, you might get that frantic call, “My friend sold his shares, should I?”
  • Anchoring: Our clients have a reference point, usually the all-time high of their portfolio. When things dip below that, even if the dip is minor, it feels like a setback. It’s not about the actual numbers, but about perceived value against their anchored point.
  • Confirmation Bias: In this age of information, it’s easy to find supporting evidence for almost any belief. If clients come to you with a perspective, chances are they’ve already done their reading – reading that confirms what they already believe. It’s not that they want to argue, but it’s hard admitting we might be wrong.

So, how do we ace this? By being exceptional coaches. Focus on what’s within our grasp: mindset, philosophy, structure, and perception. It’s about redefining success and aligning client conversations around life goals and aspirations rather than sheer monetary performance. Using technology and tailored processes, we can anticipate and counteract potential behavioral pitfalls.

Over time, this mindset gains traction. The emphasis gradually shifts from market outcomes to actionable steps—like upping that 401k contribution or chipping away at a mortgage.

Successful advisors laser-focus on what they can control, guiding clients through a succession of actionable steps towards their retirement and legacy goals.

Our role? To usher our clients towards this renewed perspective. 

Imagine a grid. On the horizontal axis, we have value – ranging from low to high. On the vertical axis, there’s control – from elements we don’t have influence over to those we can directly manage.

Bottom Left Quadrant: Here lies the aspects with low value and little control. Unfortunately, this is where many advisors and clients focus, especially when obsessing over short-term market movements or daily news cycles. It’s a reactive space.

Top Right Quadrant: This is our goal. High value and high control. It’s about those elements that not only matter most but also where our actions and strategies make a real difference.

So, how do advisors shift their attention to the top right quadrant?

  • Focus on Behaviors: Helping clients avoid behavioral pitfalls should be paramount. It’s not just about knowing these biases but actively implementing strategies to counteract them. 
  • Build Strong Relationships: A deep-rooted connection makes it easier for clients to trust you, especially during uncertain times. They understand you have their best interests at heart.
  • Shift Conversational Metrics: Instead of emphasizing portfolio performance, highlight personal financial milestones. Did they manage to save more this year? Are they inching closer to their retirement goal? These small wins focus on controllables and can lead to more fulfilling conversations.
  • Leverage Tech and Processes: Use technology to better engage with clients and streamline your operations. Implement procedures to identify potential behavioral pitfalls and act proactively.
  • Educate Through Frameworks: Introduce them to this quadrant concept. Engage them in plotting what they value and what you both can control. This visual representation can be a powerful tool to redirect their focus from market noise to tangible actions.

In essence, to be a top advisor in today’s landscape, it’s all about guiding clients through the noise and focusing on what truly matters. It’s about understanding these biases, creating strategies to counteract them, and consistently showcasing the tangible value you bring to the table.

Here is this week’s framework. 

An exercise that can be useful with this framework and your clients is to list out all the items listed in the grid. Randomize them. And then have them select their top 3 from the list. And show them where they fall on the grid. And highlight what you will focus on with them. 

Ideally (and likely) they will select items in the top right quadrant. This will allow for you to reference this framework in the future when they start talking about market or portfolio performance.