Some financial topics are hard to discuss with clients — mainly because they don’t want to talk about them. Financial professionals know how to address sensitive financial topics with their clients, but that doesn’t mean they always look forward to these conversations. After all, many investors simply don’t want to hear the hard truth about their finances.
The toughest conversations, however, are usually the most important ones. And they can often lead to the most progress in achieving short- and long-term financial goals. Here are five tough topics all investors should be open to discussing with their financial professional:
Preparing for Death or Disability
No one likes to think about worst-case scenarios. But let’s face it: death is inevitable and disability is more likely than many people realize. In fact, one out of every seven workers will experience a disability lasting five years or longer before age 65. And someone age 45 has a 44 percent chance of experiencing a three-month or longer disability before age 65.1
Getting Real About Retirement
Investors who are behind in their retirement planning (and there are a lot of them) need to face the realities of their situation. They may need to work longer, pare down their current lifestyle, or revise their dreams for retirement.
Tell them that although it may seem a little overwhelming, dealing with the situation now, one step at a time, will help them feel more in control. To consider the benefits of delaying retirement, we have this guide you can share with them.
Focusing on the Long Term
Many investors get caught up in the excitement of watching their investment performance on a daily basis. But that can backfire when the performance of a particular investment dips temporarily — and may result in knee-jerk requests by clients to sell investments prematurely. After years of market gains, gearing up for this tough talk might be advantageous.
It’s fundamental, and often forgotten, but you can help clients understand that a bad quarter or year doesn’t necessarily make a bad investment. Show them how investment performance varies by investment type, economic conditions, and a number of other factors — and that switching in and out of investments based on short-term performance may cost them in the long run.
Looking at Alternative Investments
Some investors may feel intimidated by investments outside of traditional stocks and bonds. Of course, you know that alternative investments — such as commodities or natural resources — can offer important diversification and growth opportunities.
When bringing up alternative investments with clients who haven’t invested in these options before, take it slow. (Those of you interested in a more technical observation on alternative strategies may want to read our white paper, “Utilizing Liquid Alternatives in Portfolio Construction.”) Once they understand your recommendations, they’ll likely be surprised at how well these investment options fit in with their overall portfolio.
They’ll Thank You For It
Tough conversations are tough for a reason. After all, you want to make your clients happy and make them feel good about their interactions with you. And you can become their go-to advisor. As I’ve blogged previously, research shows that 78% of investors with one financial professional agree they’ve received better financial advice as opposed to only 33% of investors with multiple financial professionals.2
Bringing up these difficult topics now can make a big difference to your clients throughout their lives. And chances are, they’ll appreciate your dedication to their financial security and will thank you for your forthright approach down the road.
Investments concentrated in natural resources industries can be affected significantly by events relating to those industries, such as variations in the commodities markets, weather, disease, embargoes, international, political, and economic developments, the success of exploration projects, tax and other government regulations, and other factors. Commodity futures contracts generally are volatile and not suitable for all investors.
Asset allocation/diversification does not guarantee a profit or protect against a loss.
1National Association of Insurance Commissioners.
2Cogent, May 2013.
Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc.