Video Steadying the ship: guiding clients to long-term goals amid market volatility

(00:00): Thanks good afternoon everyone. Welcome to the last session this week from Aegon’s Financial Wellbeing Live. My name is Justin Tolson. I'm one of the sales directors here at Aegon. Today's session joined by two experts in the world of behavioural research. Dr. Tom Mathar who works within Aegon, running our Centre for Behavioural Research, and we're delighted to also have with us today Chris Budd from the Institute of Financial Wellbeing. I think today's subject matter will be relevant and resonate with all of you as we talk around the challenges that you will face as advisers in terms of client uncertainty when it comes to market volatility. Something that's been present for us within, certainly within the UK markets for some time. The guys will focus very much on the psychology and the behavioural finance. And that may be some support and ideas that can help you with that client retention and client investment management. So again, this session is wrapped up with a normal CPD, which we will add to the screen. And also we do have the opportunity to pose questions through the chat bar and the guys will talk. And then at the end of the session, if you've got any questions, please pick them on the chat bar and then we'll pick those up at the end. So that's me done. I'll be delighted now to pass over to Dr. Tom to take you through today's session.

(01:28): That's great. Thank you so much Justin. And thank you everyone for dialing in for this last session and our Financial Wellbeing week. And we are thrilled to have Chris Budd with us. This is just going to be a conversation today, no slide deck. Chris and I will be chatting about market volatility, as Justin said. Chris is the founder of the Institute for Financial Wellbeing. He's also an author most recent publication is the Four Cornerstones of Financial Wellbeing which is of course jam tracked with insights on what financial wellbeing is in the first place, but also includes many tips immediately applicable and tangible tips of how advisers can you know, use those concepts in their daily practice. Today we are wanting to speak about market volatility and how we engage with clients in terms of market volatility.

(02:35): And this is of course, a really timely subject when we are all aware of well, there's been a lot of market volatility and we are having sometimes difficult conversations with clients who are concerned about what's happening in the market. So how to address this how to think that through from a financial wellbeing point of view is what Chris and I will be discussing today. I will need to, because this is CPD-able, I will need to well, standard procedure, need to flash up briefly the learning objectives. Here we are the moving, there we go. It's about understanding client reactions in times of crisis, differentiating client-centric and human-centric advising. And then lastly, techniques and skills for human-centric advising and the importance of financial wellbeing. Here we go. Got that out of the way. Let's get started with the conversation. Chris, how are you today?

(03:37): I'm very well, thank you. Dr. T? Yes. Apart from the driving rain bashing on the top of my cabin, so if it's a bit noisy, my apologies.

(03:44): <Laugh>, we can't hear anything. We, well, I mean, perhaps a sign of the changing times. We have a, it's bright and sunny up in Edinburgh. So that's that's, that's nice for a change. But anyway, let's move on. Let's delve right into the subject of market volatility and how we can think that through from a financial wellbeing point of view. So, of course, I mean, we had a fair share of crisis lately. In general. We have political crisis, we had a health crisis, we had financial crisis, economic crisis, et cetera. And more recently markets have been volatile and many advised clients, this is what we are hearing are concerned, but they think they might want to disinvest and hold more money in cash when you know, they get, in some cases, quite decent interest rates. Now you've been a financial planner as well as an author and founder of the Institute for Financial Wellbeing. You've been a financial planner for hundreds of clients throughout your career. In your experience, what happens in clients' mindsets in times of crisis and in times of market volatility?

(04:54): I think well, first comment is we're in a time of market volatility. Aren't we always?

(05:02): I mean, I have been in this game for, oh God, many, many years, 30 plus years there's always some sort of crisis around a corner. And we come back and, and then another crisis happens. So I think the first thing to do is to respect that this may well be something that causes somebody emotional anxiety. They're not wrong for feeling like this. They might be, in our view, wrong for wanting to disinvest, but they're not wrong in their emotional reaction. So I think the first thing to do is just to respect that and respond accordingly. That must be difficult for you if you are finding this hard, you know? I think the second point to make is everybody is different.

(05:53): I'm not a fan of the idea that we should be telling clients how to respond when markets go down. They respond in a way that's right for them. And it might just be, I know that this is not what we're supposed to say, but it might just be that getting out the market is the best thing for them. Because they shouldn't really have been in there in the first place. Because It creates too much anxiety for them. Now, I think that's probably quite extreme, but we have to respect that possibility.

(06:19): Yes.

(06:22): So everybody is different. I think the way to handle the situation is to listen, to say, that sounds really tough, tell me how it's making you feel. We'll come on to then what to do about that. But your first response is like a first aid response. Just settle the patient down, calm things down, and be there for them and listen. What do you think? What's your view?

(06:45): Yeah, no, very good. So I mean, talk me through this a little bit more. Like, so say, what's a realistic example the client calls the adviser to what is likely to happen? Do they say, look, this is happening? Or is it, is it perhaps a reaction on the back of a recent letter that has been sent out? I don't know, like an annual statement or something. They're calling in to say, look, why am I paying fees? You know, what's a realistic scenario for how exactly the dialogue might might build up?

(07:20): I think there's probably two that I would've experienced. And now people on this call will have their own examples, but one would be what you just described and a very extreme stock market crash type situation. You might get a few calls going, should I be worried? Yeah. Okay. And then the other one is more likely to be when you go for your biannual or your annual meeting. And they get a copy of their investment report, which tells them that their money's gone down by 15%. And then that might just get a few questions, you know? But again, some people will just shrug it off and go, oh, it goes up and down, it's fine. Other people will have a full on anxiety attack. Yeah. So everybody will be different.

(08:01): Okay. So, would you then, so say some clients are worried, some clients are not worried in all cases, let's assume it's gone down by a similar margin. Would you, when it has gone down to everyone, let's say margin, would you bring up the subject proactively in all cases? Or would you just wait, figure out like how they think about that or, so what's the level of productivity here?

(08:28): There's an old adage. And I can say this I hope this isn't inappropriate, but my wife is Irish. I think I can say this, but if you ask somebody in Ireland for directions, the answer is, well, I wouldn't start from here. Right. <laugh>. So there is a degree of that going on because quite a long time ago, I stopped talking investments to clients. Okay. So consequently rarely in a time of market turmoil, or did a client want to talk about the investments? It might just acknowledge it's been a tough year, but that'd be it. If, however, you're an adviser who has only talked about investments to the client then you're going to have a bit of a harder job helping the client to understand what's going on in the markets if they're educated in advance. And I use the word educated, not trained because it is about educating people to understand the situation, not training them to do the right response that you want, you know, which, okay, that can be a tendency I can see talked about. I'm talking about just educating, this is the way it goes if you're going to invest. So but it, I wouldn't start from here isn't a particularly helpful answer to that question, but it has to be acknowledged in the future, you might reduce this situation if you don't just talk about investments. Is that helpful at all, Tom?

(09:46): Yeah. So, I mean, let's more concretely picture the scene. We have a client who brings up the subject who's asking difficult question in terms of, you know, I'm down by 15%, and you're suggesting to, you know, respond accordingly. Listen, seek to understand what are the sort of emotional drivers, what's happening here, what are the instincts, what are the beliefs, et cetera. Let's, let's perhaps zoom into this separately, but I'm now wondering especially about those that are not indicating that there are concerns. So you mentioned this subject doesn't come up in your practice because you haven't educated them, that performance is what matters in the first place. Would you, would you still bring it up? Because, you know, the reason I'm asking is because you may be alarming someone who isn't actually alarmed. At the same time, you may suppress something or not give the client the opportunity to express something that deep down perhaps bothers them still.

(10:59): Look, I think it depends how you run your meetings. Okay. You're asking how I would do it, and I'm not saying that this is the only way or the right way. I just want to clarify that.

(11:08): Yes. The way I would do it is I would ask the client, what do we want to talk about today?

(11:16): My meeting, my email beforehand would be look forward to seeing you on Wednesday. I can update you with the markets if you're interested. But I'd really like to hear about your plans for the future. Okay. So I framed the meeting in the first place.

(11:31): Now, if the client walks in, throws down the FT and goes, what the hell's going on? Clearly we know what we're going to be talking about <laugh>. Yeah.

(11:38): Yeah.

(11:38): If the client comes in and says, you're never going to believe this. I've seen a caravan in Salcombe and it's exactly the thing that I want, then you're having a different conversation. So the client is going to be guiding it, therefore, so I would tee it up, I would, I would get it ready by, by offering. Second thing I would do look, I have a real belief that most, and I know that this is a generalisation, so it's not true of everybody, but most people, when they go to a financial adviser, I think what they're doing is they're saying, look, here's my money. It scares me because money decisions are fearful decisions. We can talk about the details of that another day if you want to, but money decisions are fair. Money is scary for people neurologically. So here's my money, it scares me. You look after it so that I can be off there playing football, going in on traveling, whatever it is going to do. So you need to acknowledge that that's your role. You need to acknowledge I am the trusted custodian of your money. And if you're going to do that, you have to deal with the rough as well as the smooth

(12:40): So you need to acknowledge you need to... Whether the client brings it up or not. I think a line, it's been a bit of a tough year for investments. Would you like to go through it? My experience, most people would say, nah, not really. Okay. but some might want to, so you're giving them the opportunity, but as that trusted custodian of their money, your job is to reduce their fear. Yeah. So that they can go away and live their lives and not be thinking about the money. So I wouldn't, I would try to talk about the money as little as possible, but instead talk about what the money enables now. Okay. That may or may not have changed. So really, that's where the heart of the answer lies. Yeah. If the stock market's gone down 15%, you are one year away from retirement, and now it's going to be two years away, that's a bit of a difficult conversation, but you need to have it. If the stock market's gone down 50%, you're 10 years away from what, from doing retirement, and it doesn't make any difference. You could easily skate over it. So it depends on the circumstances as well.

(13:41): Yeah. Okay. Good. So, you mentioned fear, that's an emotion. You mentioned beliefs about you know, what money is what money isn't. There's of course other things. There's instincts, there's motivations, there's sort of context factors, there's habits, there's all sorts of things. And I'm wondering, like, as the clients present themselves and you know, you know, set the scene as to what they're wanting to talk about, what are you filtering for? What are you filtering for when you, when you listen? You know what, the reason I'm asking this question is because you, you mentioned listening. I get it. You know, we always talk about how important it is to listen. And we speak about the 80 20 rule of thumb, you know, 80% of the time you listen 20% of the time you speak. But the thing is, it's bloody hard to listen. Right. Because there's tons of books out there on like how to speak but there's hardly anything on how to listen. So what can you say about how to listen and what to listen for?

(14:48): Great question.

(14:52): The objective of being in a meeting for the adviser is not to solve problems. The problem is that we are trained to provide solutions. So you go through school, you get an exam paper, you got the CII exam paper, and it says, here's a set of facts. What is the answer? When somebody comes in feeling uncertain about their future and may be worried about markets, there isn't an answer. You can't provide a solution for them. So your role in listening goes from seeking the facts that will enable me to find a solution to being a safe place for the client to express their fears. And your role, therefore, is to be to observe, be focused on the client totally. And not be thinking of what's the answer? How do I get out of this?

(15:56): How do I persuade them to do something? Whatever it might be. You know, a role is genuinely just to listen and be curious about them. That is not something that comes naturally. I'll give you one quick example. I was doing some training on this on coaching skills, listen and questioning skills to a group of advisers. And I gave them three rules to follow. And people could try this try it with your, with your partner maybe. Or if you've got teenage kids, it's particularly fun to do with them. And that the three rules are, you got to ask them something very broad. And they are, when you then have a conversation, you are not allowed to offer a solution. You are only allowed to ask a question and you are not allowed to mention yourself.

(16:40): Okay. So that's those solutions only questions and not allowed to mention yourself. I would suggest to everybody listening, have a go at that tonight and see how long it takes you before you break one of those rules. <Laugh> I did this with a group of advisers. It second or minutes, what do you think? It, it literally, it's under a minute usually, right? Yeah. Because these are not the social way that we deal with things. So I deal with this group of advisers and they all came back in again, and I kind of went, how did it go? And one guy said, yeah, I tried it, but I didn't like those rules, so I ignored them <laugh>.

(17:15): But if you do go through those rules, you'll find that the other person starts opening up the use of silence, just not saying something for a while. Move somebody from got a gut answer, their instant answer to proper deep thinking. The moment you speak in a silence, you stop them thinking. So if you are trying to get somebody to really consider, well, what is your reaction to this market going down? What's your real concern here? And they will give you, well, the market's gone. My money's gone down. Don't say anything and just wait. And see what comes out. And then you'll start getting into the real beliefs that are behind the fear of the stock market.

(18:01): Great. By the way, I should repeat that. If there are questions along the way feel free to add them to the chat and we can discuss those. Chris, I want to pick up something from your book. This is actually something that I'm, that I'm quoting a lot. This is a statistic since the most common objective that you see in a suitability letter is along the lines of your objective is to beat inflation with your investments by accessing our portfolios <laugh>. So that's really at the heart of the problem, isn't it?

(18:38): Yeah, absolutely. I got challenged on that from a compliance officer for one of the big networks who said, I don't agree with that statistics. It's a hundred percent. Look, what you're doing is, there's two things. Firstly, you are framing the conversation to be about money. Yeah. So it's and to be about the investments. So it's hardly surprising that when markets go down, the client wants to talk about the investments. Because that's the narrative that you have set. I want to touch on something else before the second part of that, but just to say it, to remind me, if you get life objectives and intrinsic motivations and stuff that we can talk about, if that's a focus, then clients don't notice the stock market's going down because that's not what they're coming to you for.

(19:25): But I wanted to touch on one of the the framing of the meeting to be about finance. And this is a really big deal. This is really important. What happens when you get a client coming to see you? I'd be really interested in hearing from people about what their process is. So for example, some firms will send a copy of the latest valuation statement. They'll send an attitude to risk questionnaire, a bunch of questions, which nobody understands the questions and nobody understands the answers, but purports to tell you everything about the stock market, right? Actually, I've got a little point to make there. I remember in Covid the stock market properly went down and I was at a group with the next gen planners, and they were talking about, you know, how do we respond to the market volatility again?

(20:17): And I made the point that, look, you've sent out an attitude to risk questionnaire to your clients that said, how would you feel if the stock market goes down by 20%? It just has. So why don't you ask them? How do you feel? And one of them came back the following week and said, I did that. I had a client come in and she had said that I would stay invested, or the risk questionnaire, I would stay invested because I understand it's about long-term objectives, blah, blah, blah. And then when I said, how do you feel? She said, I feel utterly panicked. <Laugh>. So there's all sorts of reasons like predicting future self, not understanding the question in the first place, all sorts of reasons, but you've got information there. Use that, use that with the client, not in a challenging way, but in a getting deeper understanding type way. And again, you are now moving the conversation away from just talking about investment markets and investment performance.

(21:15): So is this an argument in favour of using the attitude to risk questionnaire to do something else with it than what it is intended to do?

(21:27): Well, what it's intended to do is stick it on the file so that you can say you've got one on the file, isn't it? Let's be honest. Yeah. Get it out, talk to the client about it. A basis for discussion. That's all. Not a basis for trying to persuade anybody to do anything, but just say, what did you understand by this?

(21:44): Especially if somebody, so let's take an example. Let's say somebody comes in and says, my money's gone down. What are we going to do? Should I cash everything in? What you don't want to do is, well, on the attitude to risk question. Now you said you wouldn't do this. That's not what I mean.

(22:00): I mean, this is interesting that your emotional reaction now is different to the one that you had when the markets hadn't gone down. Let's discuss that difference if we could. What's different now about when you completed that And then you are going to start getting into some of the underlying motivations and fears that might have nothing to do with the stock market's gone down, or it might do. It might be that they haven't, that they're worried they're not going to achieve their objectives. And you could say, well, actually the cashflow forecast hasn't changed. It could lead you into solutions, but you first of all want to really get out what the issues genuinely are.

(22:35): Yeah. Okay. Great. Look, we are in the final third of this session, and we are also on the final stretch of financial wellbeing week. So I want to reflect a little on financial wellbeing in general, and that term perhaps in specific, I mean, it's perhaps not surprising to you, Chris, that to many advisers, the term financial wellbeing is a bit ambient, perhaps. Sounds like cushions and candles, but, so, you know, something that's sort of like lacks serious financial strategy. I hope that doesn't come as a surprise, but no one has said it like that, this is me sort of like paraphrasing, you know, what I think maybe happening. What would you say to advisers who are new to this concept of financial wellbeing, exploring the method and the systematic behind financial wellbeing. Why is financial wellbeing important and why does it make business sense?

(23:44): Okay. So we need another hour and a half, if that's all right. Look, the "it's not cushions and candles", although they do make me happy, actually, not cushions. But I like a good candle, financial wellbeing is taking the existing research from philosophy, theology academic research, neuroscience, there's loads of it out there about what makes us happy and applying it to the financial planning process, which, when you think about it, is amazing that we didn't start from, there is another, I wouldn't start from here moment for me. But we are where we are. And financial planning is very young profession. If you compare it to things like accountancy and solicitor, legal profession, we're very young. It's hardly surprising. We're still developing. I think if you, if you're a client who, so commercial, we know from the research that you've done that people who have a more financial wellbeing agenda get more referrals from their clients than people who just talk about investments. I know that anecdotally you've got some data to back, to back that up. I think also it's a lot more fun.

(24:59): For the adviser. I mean, because you're talking to clients about their lives and about and I'm not necessarily talking about massive changes, although sometimes it can be just very small changes that make a big difference. Understanding why we're bad at spending money, why we're bad at financial decisions. We are wired to be bad with financial decisions. It's not our fault, but our brains are not meant to do financial planning decisions. You'll find that clients make better financial decisions, they will get the forms back quicker, you know, because they see the point now.

(25:38): There's all sorts of, I mean, all sorts of commercial reasons why it makes sense, but the biggest one is it's a lot more fun for me. Yeah. That is the biggest one.

(25:48): Yeah. Okay. And, and you are, so I think this is an important point that you know, in the context of market volatility, for example you're saying, well, you know, because I have that wellbeing agenda rather than a performance agenda I'm not actually having these conversations around performance in types of market volatility anyway, because, I mean, fill that gap because they've not been educated that way.

(26:18): Well, it's just not our, that's not our relationship. I don't discuss football with the guy who fixes my car, you know, because we haven't got that relationship. And that's not what we're there for. Mind you, I also don't talk about fixing my car either because I don't understand it, and I tell him to stop telling me what he's talking about, which is another good example. You know maybe I should try talk to about football. Actually, that might get us off the engine. But that is a good metaphor because if you're only talking to clients about investments, they want to know what's going on with their investments. If you are talking to them about their lives and their futures. Yeah. Look, I'm going to be a little bit harsh here and I'm going to be a bit controversial.

(26:56): If I may, if you are a client of a financial adviser, i.e. Somebody who talks about the money, does a really good job on pensions, on tax, and on investments you'll have a happy client, brilliant. If that client then goes to a financial planner who talks about the future and creates a cashflow forecast to get there, you ain't going back. You're not going back to a financial adviser once you've had a financial planner, in my view. If you are a financial client, a financial planner, and you meet somebody who talks about, well, that future you designed, will that make you happy? Here's some of the research about what makes us happy. Let's talk about what some coaching skills, and they create a cashflow to a future you didn't expect, but which will make you much happier. You're not going back.

(27:44): So financial wellbeing for me is the direction of travel. Yeah. It's the cat's at the back. You can't go backwards from there, I don't think. Yeah.

(27:51): But to be clear, the financial planner or the financial adviser with a strong wellbeing component would still have the same technical and functional skills of the performance maximiser. It's all, you know, you call the performance maximiser or the investment guru, whatever you want to call them. But the point is that in addition to those technical and functional components, they have those human-centric skills of empathy and listening and is that the way you phrase it?

(28:23): Yes. So we, as you know, at the Institute Financial Wellbeing, we run the financial wellbeing certificate. And that covers the the research on what makes us happy. How you could apply that to the planning process with a bit of coaching skills in there as well. So it doesn't necessarily, you can do some big changes with some very, very quick wins. You big wins with some small changes. I'm sorry. Yeah. Like for example, listening, like understanding why we all spend more money on rubbish that we don't need. There's a good psychological reason for that, which will understand it. You can stop doing it. So it doesn't need to be massive, but yes, it's, I I view it as an upgrade. Absolutely.

(29:02): Okay. Great. Fantastic. So we are here at 3.30. If there are any questions we are very happy to stay on and discuss those. I just want to flash up very quick, again, the learning objectives, which by that point of course, are learning outcomes. So that you are that we just finally sent those CPD certificates over stop sharing those again. Thank you so much, Chris. That was great. Very insightful, as usual. And if there are any questions we open up to the floor and take those. Thank you. So

(29:40): Any questions can go in the chat bar. Chris, if you don't mind, I've got one for you. Do you think it's better to be proactive with client communication in volatile markets or stay reactive?

(29:56): I think that's a really tough one, Justin, because it will land with different clients differently. If you are a financial planner who's got, what would they typically have? 80 to 120 clients. You'll know the ones that need an arm around the shoulder at a difficult time. I would pick the phone up. If the markets have really going haywire like in Covid, then maybe something to everybody, but what are you going to say? There's nothing you really can say, which is why the emotional response is important one to tap into. And I would pick the phone up and say, I know last time this happened, you were a little bit jittery. How are you feeling? Are we okay? You want to talk? But I probably would not tend to do a blanket response to everybody because you're just going to worry people that didn't want to be worried.

(30:45): Yeah. Thank you for that. And, and do you point customers or clients, you know, there's so much, there's so much information out there, be it through the internet, be it through the papers. Do you try and educate clients in terms of when you're going through these, these volatile times? What points of reference are good to look at rather than, and one, which ones are the ones to avoid?

(31:08): The education I would do is all around wellbeing not around money. I would avoid talking about money with a client of a financial adviser because that's what they want. They've come to give you the money so they don't have to talk about it anymore. Don't have to think about it anymore. So the newsletters I would do would be about the relationship between money and happiness. So help make better financial decisions. And the people that I speak to this topic of conversation today doesn't really come up. The advisers that I work with and the advisers I know, I don't really, nobody's told me that they've got lots of calls from clients worried about their money, because that's not the relationship, that's not the narrative that they have. So I would absolutely educate them, but I would educate them about their relationship to money, not about money.

(31:53): Really good answer that. Thank you for that. I can't see anything else coming up on the chat. So that being the case and it's slightly over I would just like to thank you Chris, and you, Tom, for your, your time today. I'd also like to thank everybody behind the scenes this week who's helpful, the financial wellbeing live sessions together. There's a lot of work that goes in, in behind these and to all those who've attended over the last three days, hopefully you found it of benefit. We really appreciate your time and your input into these sessions. We will ensure that there is follow up and access to the appropriate information. I promised to highlight your book, Chris, when we do the follow up as well. So we'll see that on the number one best seller soon. But on behalf everybody at Aegon just thank you so much for your time and we'll close it there.