Stop Clients From Reworking Investing Timelines

Originally published on
US & World News
September 13, 2021

Financial advising clients who constantly adjust investing timelines may damage long-term returns.

Many are familiar with the risks associated with clients' FOMO, or the fear of missing out. But they may be overlooking another pesky client urge called CATH, or "constantly adjusting time horizons."

This condition is related to FOMO, which starts with clients being distracted by whatever the hot investment trend is. Typically, they come to you, their trusted advisor, and ask (or demand) that you get them some of that good stuff they are hearing about.

If  is left untreated, after the market falls and has trouble getting back up, that anxiety can develop into a chronic state of CATH. With CATH, clients' investment timeline goes from years in the future to "right now." And just like that, their temporary fears can turn into investment decisions they may regret later.

Constantly adjusting time horizons may feel good to clients in the moment, but it risks damaging  because it disregards the process and strategy used to pick investments when the financial plan was established.

That initial time horizon and the details within it were likely set at a time when they were thinking more strategically, and less emotionally, as investors.

Whether or not you deliver what they are asking for, the actions you take now may merely be a Band-Aid on an ailment that's much more long-term in nature. Eventually, their doubts can damage the relationship and trust they have in you. For that reason, it's important to have a preventive plan for their tendency toward CATH.

Advisors, here are three ways to stay ahead of clients' constantly adjusting timelines.

Reinforce the Importance of the Investment Time Horizon

Broach the topic of investment time horizons with your clients in a way that  and illustrates the value in sticking to their timeline.

The structure can take many forms, including a little pop quiz. For example, ask your clients what the 15-year return of the S&P 500 is, and they won't be surprised that it is about 11%. But they might not realize that the range of 15-year returns over the last few decades has been from 2% to 12%. That, combined with bond yields near zero, should make them think more about the returns they have already accumulated and make them more likely to want to protect them than push the envelope.

This is a pure self-assessment process for your clients, but it's an opportunity to show your value in a more tangible way than pointing out their annual returns in a bull market.

It is always possible that strong returns and the get-rich-quick-type investment era can last a while longer. But you can put it in perspective for them and steer them back to the winning game plan that their investment time horizon is based on. Winning the next play of the game may be their natural instinct as investors, but it doesn't have to be their undoing if you keep them focused.

Give Examples of How Clients Can Take a Good Situation – and Blow It

Convey the message that a plan is not a plan if clients do not stick to it. Adjustments can always be made, of course. But those adjustments need to be accounted for in the plan.

As an example, a client may have accumulated most of the wealth needed to retire or stay retired. But then you get "that call," and the client decides to take half of those assets and buy whatever stock just went up the most. This is where you can emphasize the difference between making bold moves at times of high market risk and taking big risks with relatively small amounts of money.

If a client likes a certain hot investment, you may determine that all he really wants (for ego) and needs (to avoid CATH) is to invest 5% of the assets in that buzzy asset. That's instead of 25% or 50%. You can show him that in a world where even the S&P 500 can drop by 50% or more, if this investment fell by 40%, that would still only shave 2% off the total portfolio (40% of 5% is a 2% "impact" on the portfolio).

Educate Clients on How to Stick to Their Investment Objectives

When the stock market falls by 30% to 50% in five weeks, then doubles in less than 18 months, that creates a massive "recency effect," which occurs when clients remember the most recently learned information best.

That, in turn, can act like a hard rainstorm on a long highway drive. It is harder to keep the car straight. That's the situation that you now face with some of your clients. And the longer this period goes on, the more likely you are to see them drift away from their true wealth objectives.

To avoid an argument, simply return to where you started with your clients. Part of their onboarding process was filling out a and perhaps walking through a financial planning process with you. Go back to that plan and stress-test it.

But what about the risk-management side of things? And their progress toward their goals? If the wild ride of the past few years ultimately resulted in gains, regardless of the return percentage, they may have gone from "I hope to retire" to "I can retire." Do not let them drift out of their lane and reverse that progress just because it is raining hard.

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