Why setting expectations is the most important thing an advisor can do

Clients are more informed than ever before, but that can be a double-edged sword

Why setting expectations is the most important thing an advisor can do
Clients are more informed than ever before. With widespread Internet coverage given to investments and more column inches being given to strategies, Canadian investors are equipped with a level of know how that far surpasses previous generations. Clients are savvy and educated and, more importantly, eager to soak up as much new information as possible. For advisors, staying on top of national and international trends, understanding market moves and being able to articulate industry information clearly has never been more important.
There is so much media attention given to the investment landscape but Darren Gazdag, SVP Business Development at Excel Funds Management Inc., believes this can be a double-edged sword for Canadian investors: it’s not uncommon for a confused investor to call an advisor after reading an article in a magazine or hearing a pundit speak on television.
“In some cases, there’s too much information available, and for the average investor it’s easy to get lost,” Gazdag says. “More than so ever, for advisors it’s all about reviewing strategies on a monthly or quarterly basis and ensuring that clients are on the right path.”
In addition to helping clients interpret media coverage in the most sensible way, Gazdag sees the setting of realistic expectations as an important skill for advisors to possess. Many clients still expect returns of 8 – 10% with minimal risk exposure and a low fee. “In reality, in terms of where we are right now with global growth, returns of 5 – 6% are much more realistic,” he says. “To achieve anything more you have to go up along the risk-reward spectrum. In doing so, more times than not, your add a few more beats to the overall fee and add risk.”
It’s becoming increasingly important for advisors to become fully aware of their clients’ goals and motivations, and address any confusion head-on to ensure everyone is on the same page. “Gather your intel, ask detailed questions and figure out what’s important to the client, and then devise a plan accordingly,” Gazdag says. “It’s also important to work out how they define risk.”
Gazdag identifies three key factors that investors are most concerned about: growth, income and preseveration of capital. Having clear discussions with clients on each topic helps advisors build a strategy within a framework that the client is comfortable with. It will also play an important role in eliminating unwelcome surprises and setting realistic expectations. “Being open and realistic and then setting a strategy that is reviewed on a quarterly or semi-annual basis goes a long way to helping clients achieve their goals,” Gazdag says. “Also, there is so much product available today, so advisors have to help clients understand how they all work, how they be can used in unison and which products can mitigate risk or enhance volatillity.”