Building Trusted Relationships
We believe that the quality of the relationship you have with us has a direct impact on your willingness to follow the advice we give you and ultimately on your returns and your ability to achieve your financial goals. Following sound financial principles is often emotionally uncomfortable and often requires a trusted objective party to help you adhere to those principles in difficult financial times. We aim to offer you that trusted, objective, personal support.
A study done by Dalbar Inc. in 2008 showed that for a 20 year period the average equity fund investor would have earned an annualized return of just 4.48%. This represents an underperformance against the S&P 500 of more than 7%. This is not simply what the funds would have returned but takes into account the average investors contributions and withdrawals. Why is this the case?
- The average investor makes decisions to buy and sell based mainly on emotional reactions to market swings.
This emotional reaction shows a lack of a quality, trusted relationship with an Investment Advisor who is supporting a client through the emotional pit-falls of investing. A good advisor knows that client’s emotions have a significant impact on their returns and will address this issue by building a relationship based on honesty, integrity and open communication.
Greed
As markets returns rise, investors pour cash into equities in an attempt to capitalize on high returns. At this point an investment advisor should be cautioning his/her clients that they are chasing performance and likely ‘buying high’ and encourage them to stick to their investment plan. Unfortunately all too often they don’t have a relationship with their clients that either enables them to say this or enables the client to believe them when they do say it (It’s hard to believe a broker that usually has ulterior motives!). Worse still some brokers will see this as an opportunity to sell more commission based product that encourages or endorses the client’s attitude and lines the pocket of the broker.
Fear
When the market falls investors scramble to sell their shares to avoid losses. An investment advisor should have already set the stage for the potential losses and should be encouraging the client to stick to the investment plan. Although there is a mass of evidence supporting the opinion of the advisor it is often difficult to understand, counter intuitive and not emotional substantial enough to combat the fear and anxiety that a client is experiencing. It is at this point that the trust between the advisor and the client has the most significant impact on returns. The client will usually ignore the advice given by their advisor as the discomfort is so high and they don’t really trust that their broker is acting in the client’s best interest. They go on and sell their positions thereby adopting a de facto, buy high, sell low strategy and usually underperform a passive benchmark.
We help manage Fear and Greed in order to maximize investment returns.
It is our intention to build a relationship with you that is free from external influences that will enable you have the emotional wherewithal and patience to weather both market dips and market booms without deviating from sound investment principles.
In order to build this relationship we commit to:
- Foster an environment that encourages honest and open communication.
- Communicate your situation in an honest, respectful way that is understandable to you.
- Tailor our presentations and language to your level of understanding and interest.
- Speak the truth to you about your situation and your ideas.
- Listen and understand your goals, needs, fears, concerns, past experiences and your values and integrate them into our relationship and your plans.
- Focus and concentrate on you and meeting your needs by taking payment from only you.
- Value your opinion and ideas on things.
- Clarify any questions or concerns.
- Support you as you go through difficult financial and investment times.
- Empower you to make good financial decisions.
- Prepare you for the level of risk you have taken.