“I don’t want to do anything in my portfolio right now.” Have you heard that before? “I am sitting on my cash because I am worries about the economy.” That might sound familiar too.
Clients are paying you for advice, but are then reluctant to act on it. If people behaved the same way with their doctors, the results could be catastrophic. What is upsetting your clients? How can you put things into perspective?
The first step is to get them talking. Draw out their concerns. Also try to also learn the source of their concerns. A statement from the chairman of the Federal Reserve saying interest rates will be rising carries more weight than a similar pronouncement from their barber or their always-negative neighbor.
So, what might be bothering your clients?
Here are 13 things they may be worried about and what you can tell them to lessen their anxiety:
‘Inflation is out of control’
Many advertisers on TV have gotten onto the “inflation run amok” bandwagon. They use it to promote why you should buy now or how they alone are holding prices down.
Conversation: There are two types of inflation: the national numbers and inflation in your own life. The national numbers have been moving in the right direction. When the Federal Reserve increases the “cost of money,” companies rethink expansion. Developers think twice about building more houses. The economy slows down. This should bring down inflation. Data shows that inflation in June 2023 was 2.97% vs. 4.05 a month earlier and 8.26% in August 2022. What the Fed is doing has been working. If you’re troubled by rising food prices, you could try other brands and patronize different stores. Someone is always seeking to build market share by offering lower prices.
‘I think interest rates are going up’
Interest rates have risen from almost nothing. The Fed funds rate was 0.25% until March 17, 2022. As of July and August 2023, it’s been 5.5%. The sequential increases put in place by the Fed have done their job. We might be near the top.
Conversation: You complained for years about low interest rates! At last, you can see rates at or above 5%! As of August 2023, you can find one-year CD rates over 5% and longer CDs just below that rate. Even if you are not going to invest in the stock market, lock in some of these great rates while they are available.
‘The stock market is too high. I missed the move’
The market has defied expectations and kept on rising although some predicted a recession. Some clients think the market high is set the day they finally commit to putting money in the stock market. They might not understand sector rotation.
Conversation: The stock market is cyclical. It must go down sometime. However, there are long term trends in place that are not going away. Do you think we are moving away from fossil fuels towards renewable energy? Do you feel governments will spend money to address climate change? Do you think an aging population will need more pharmaceuticals? Try to invest based on what you believe. Look at dollar cost averaging if you don’t want to get in all at once.
‘The stock market is due for a massive correction’
There is a difference between expressions like correction, bear market and massive correction. What has led your clients to believe a massive correction is imminent? What do they think that means?
Conversation: Money is like water. It flows back and forth like the tide on the seashore. The money needs to go somewhere. Often, money moves out of popular stocks and moves into different stocks. Although past performance is no guarantee of future results, we can learn things from looking at history. I have this chart of stock performance over the past 100 years…
‘I think Social Security will go broke’
Your retired client is concerned their Social Security checks will stop one day. They are sitting on their cash because they think they’ll need it to plug the gap in their income. As Mark Twain once said, “The reports of my death have been greatly exaggerated.” Social Security is not in as bad a situation as the TV news implies. The government has faced this problem before.
Conversation: It is unlikely that Social Security payments will stop anytime soon. One of the reasons is older Americans. The highest percentage of voter turnout by age is people age 65 to 74 (76% of them voted in the 2020 presidential election). The government has many levers it can pull to bring in more money for Social Security. It can change how it is taxes. It can change how much people in the workforce contribute. It can raise the maximum contribution threshold.
‘The government spends more than it takes in’
Yes, the government does spend more that it collects. That is why it has run a budget deficit for years. It would be difficult to run the government like a business because it does many things that don’t make economic sense to the average person. A single postage stamp will take a letter across the street or to Hawaii.
Conversation: Do not feel sorry for the government. Its ability to borrow is different from a normal person’s situation. When the world political situation is unsettled, foreign money flows into U.S. Treasury securities because they are considered a safe haven. Think about capital gains taxes on stocks. You take all the risks; then sell to realize your profit. The government is your silent partner, taking its share in taxes.
‘I am worried about the outcome of the next national election’
This can be an issue regardless of your political beliefs or party affiliation. Many people think something terrible will happen if the wrong party gets into power.
Conversation: One person does nor run the government. It has three branches: executive, legislative and judicial. They act as constraints on each other. Even within one party, there are liberal and conservative factions. The government has had unpopular leaders in the past. It has always gotten through difficult times.
‘Climate change will make the planet uninhabitable’
There are people with opinions on both sides of the issue, but TV channels have made changing weather big news. Bear in mind, it makes economic sense for them. Some sitcoms might cost a million dollars an episode to produce. Standing a reporter in the rain to report on a storm costs a station almost nothing [additional] since they are on staff.
Conversation: Weather has become news. In a worse-case scenario, NASA predicts some parts of the world might be uninhabitable in 30-50 years. But countries and governments will take action. Private industry will get involved and figure out how to make money from it.
‘Everyone on TV tells me to be scared’
The TV news talks about “rampant inflation.” The stock market doesn’t go up or down anymore; It soars or plunges. Weather is catastrophic. There seem to be plenty of reasons to panic.
Conversation: TV news programs are a business. They are supported by advertising. There is an average 12 to 17 minutes of commercials in a one-hour TV program. The TV networks need to get you to continue watching. Framing everything as an emergency is effective. Have you noticed how it’s rare to see a story say, “The crisis resolved itself?” They just move to the next crisis.
‘I see all these ads on TV for diseases I never knew I could get’
If you watch a lot of television, you see a lot of ads. You might think “they have invented” new diseases. Many of these diseases sound serious. Often the symptoms or side effects involve things like fever, chills and trouble sleeping. It is easy to think that you have an illness and your doctor hasn’t discovered it.
Conversation: The drug industry discovered that advertising directly to the public works. If you have regular checkups with your doctor, they should see the warning signs because they are professionals. At least one study has concluded that about 70% of drugs advertised on TV have little practical value.
‘The war in Ukraine will never end’
The Vietnam was lasted almost 20 years. The war in Afghanistan lasted about 20 years. It seems the war in Ukraine will not be over anytime soon. It unsettles world politics.
Conversation: The war in Ukraine is serious and involves many other countries both directly and indirectly. You might wonder where the money comes from to support the war. Although food prices are affected, there are few other effects in your day-to- day life.
‘Oil prices will never come down’
Your client remembers when gasoline was below $2 per gallon and oil was under $50 a barrel. As of late August, gas is averaging $3.83 a gallon and oil is about $83 a barrel.
Conversation: Oil has almost reached $150 a barrel in the past. The price of oil is often considered a bellwether indicator of strength in the economy. So, higher oil prices can in some ways be a good sign. But as a consumer, bear in mind the trend is toward oil not being the automotive fuel of the future.
‘Immigration is a problem’
This is another story that appears on the news a lot. The problem seems unsolvable. Your client might be upset for many reasons.
Conversation: Start by acknowledging that the U.S. is a great place to live. That should build common ground. People will risk their lives to get here. Mention people who take the risks to move to a foreign country are often motivated and ambitious. Note that the U.S. has varied its immigration policies throughout history. We opened the doors when we needed to settle the West and get more workers in factories. Immigration is an issue the country has successfully addressed before.
We tend to find things to worry about. Even when things are going well. As your client’s advisor, you can help them differentiate between things they have control over and things beyond their control. You can also help them understand that a few things might directly affect them but that many things don’t have an immediate impact on their lives.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” is available on Amazon.