Chris Haines explains how complacency differs from confidence, why it’s a growing risk now, and how advisors can keep themselves moving forward
A macro view of markets might make an advisor relax and take a break. Especially if their practice is established, their clients are happy, and money keeps walking in through the door. Equity markets are at historic highs, assets under management are up across the industry, and clients have seen their net worths expand significantly, especially if they owned their home for the past 20 years. That feeling of contentedness and wealth can lead to one risk that Chris Haines sees growing: complacency.
Haines is the Senior Vice President and National Director for Raymond James Ltd. in Vancouver. He explained that complacency among clients and advisors is the biggest risk he sees for the wealth management industry today. He argues that the combination of strong markets and appreciating assets like homes can make people feel “falsely wealthy” without a plan to adequately address an eventual market downturn or a shift in their financial needs. Planning, he says, is the key to addressing complacency.
“No matter what someone’s mortgage is, no matter what their cash flow situation is, they see the value of their home that they bought for $500,000 now worth $1 million or more. And they think, ‘great, I’ve just increased my wealth.’ So that to me is the biggest risk, whether it’s for investors or advisors. And how I think that’s mitigated is with just good planning,” Haines says. “I don’t think our advisors need to be able to predict a market downturn to their clients. They need to make their clients unconcerned when there is a market downturn. They do that with planning, with well-constructed portfolios that aren’t going to see that same downside and can give the client confidence.”
The difference between confidence and complacency
There is an old adage in the industry that says the best performing investor is one who never looks at their account. The truism holds that someone confident their investments will grow long-term can just leave the account alone, while someone worried about their wealth will look at the account more and suggest changes based on headlines, macro changes, or how they’re feeling on a given day. The somewhat more passive approach taken by the confident investor is not complacency, in Haines’ view.
Haines posits that a complacent investor is one who changes nothing about their spending habits or their goals in the face of changing circumstances. He’s not advocating for a micro-based fiddly approach to the portfolio, but instead argues against the assumption that because things are good now they will be forever and that prudence in spending or goal setting isn’t necessary.
Advisors can create plans that control for complacency by focusing on client goals. Most clients, Haines says, are concerned about whether their savings will last through retirement at the lifestyle they want to maintain, and focusing on that goal in the context of their market or real estate returns can be useful in avoiding complacency.
Some clients in the higher net worth brackets have plenty of wealth to retire, but Haines says they still have goals that can nudge them out of complacency. Advisors for these clients can focus on the intergenerational wealth transfer, legacy plans, tax efficiency, and charitable giving to ensure these clients remain engaged and aware of the risks they still could face.
By weaving complacency controls into goals-based financial planning, Haines says advisors can avoid the panic-inducing call where they ask if the client is ready for a major downturn. During annual or semi-annual reviews, advisors can still talk through the prospect of a market correction but working those into the regular cadence of conversation can make the topic less frightening.
Keeping advisors from complacency
The same positive returns and asset growth that can breed complacency among clients will impact advisors, too. A stable practice with money coming in and assets growing might make an advisor want to “coast,” but that can create complacency as well and put their practice at serious risk during a market downturn.
“If you look back in history advisor practices and dealers tend to fail during these corrections that people don’t see coming. Whether you go back to the ’87 market correction, the dot-com crash, and the financial crisis,” Haines says. “When you have these big things, that’s where, I guess the internal phrase is people tend to get ‘blown up.’ Perhaps they have too much risk or they’re not doing enough. That’s when they tend to lose clients.”
Haines is responsible for the independent advisory channel at Raymond James and in working with those advisors, he says the best thing a dealer can provide is coaching. His team will talk regularly with advisors, find out about their businesses, and offer support where they can. Those engagements can prompt the kind of self-reflection that works against complacency.
Rather than a dealer going out to practices with a “command and control” tone, he says that a more understanding and probing approach can create an embedded culture that works against complacency. Giving advisors a specific set of tasks or processes might make a dealer feel like they’ve solved the problem, Haines says, but the more effective solution lies in leadership, inspiration, and allowing advisors to work independently. Even using the word ‘complacency’ can put an advisor on the defensive or prompt them to dismiss the idea because things are going well. Haines says curiosity about the business can help ensure advisors move constantly towards a goal.
“Rather than ask them if they’re feeling complacent or not doing things, the best thing we can do is ask them how their business is going, where they want it to go in the next few years, what their goals and what their plans are,” Haines says. “If they don’t have answers to that that’s probably going to trigger that reset in their thinking.”
