As a financial advisor, I enjoyed risk conversations. It wasn’t because I was a doomsayer or compliance nut.
Risk-related discussions simply helped me offer better advice.
Simple, direct questions meant more honest and thoughtful answers. When giving advice, it’s easy to get caught up in percentages, ratios and deviations (investment-speak). Basic to you, but potentially confusing to clients.
Straight-talk produces much better results.
Discussing the possibility of a “$400,000 drop in a market value” is much more direct than pondering a “20% correction”. No mental calculations are required.
It might go something like this…
“Mr. & Mrs. Client, Your portfolio is worth $2,000,000 today. How would you feel if it dropped to $1,600,000 over the course of the coming year? How would a market value drop of $400,000 impact your financial goals and your lifestyle? Would you lose sleep?”
Now, that’s a real conversation starter. The discussions can be gut wrenching. But in the end, your models and allocations can be better shaped for each client. You avoid being second guessed when the markets get messy.
This same type of reality-check is vital for your business.
After all, your risk as a financial advisor is a direct reflection of your clients’ risk profiles. I’m sure we could come up with a complicated formula for that calculation.
But there’s no reason to hire an MBA.
Over the past several years, you’ve probably seen a major spike in the assets you manage. The market has driven a lot of that growth. How would you be impacted if things turned the other way?
Consider this line of questioning (apply your own numbers)…
“My fee-based revenues have risen to $2,000,000 over the past 12 months. How would I feel if they dropped to $1,600,000? Would it be like giving back the last year or more of growth? How would that $400,000 loss in revenues affect my business and my lifestyle? Would I lose sleep?”
Those are critical questions to consider as you think about your asset-base, fee-based revenues and even the value of your business. Unfortunately, those questions usually don’t get asked (or answered) until it’s too late.
You have opportunities to guard against much of that downside risk. Opportunities that don’t exist for your clients. In fact, you could actually grow your business in the worst of market conditions.
But you have to be prepared.
You start by assessing your risks…right now. Then you develop strategies and priorities. And finally put your plan into action. Done right, it will run on autopilot. It will constantly be at work in your business.
Do you want to talk about the risks in your business?
I’m available for a complimentary strategy session. We’ll spend 60 minutes reviewing the risk profile of your practice. Just go to my calendar a pick a time that fits your schedule.