Establishing expectations for clients is key

If advisers don't set expectations when they first meet with clients, clients will create their own, and odds are they'll be disappointed.

Setting client expectations is a key determinant of your success as an adviser.

Most people walk through the door of your office with no real idea about what you do. They have the perception that an adviser’s job is to find them assets that are appreciating while simultaneously steering them clear of those that are about to decline.

Allowing clients to believe this by not setting realistic expectations is a recipe for disaster (and high attrition).

Over my three decades working with clients, one of the most important things I’ve learned is that a primary determiner of success is setting expectations during the first meeting. Without my setting these expectations, the client will create their own and the odds are, what you deliver won’t line up with what they’ve envisioned, and the clients will be disappointed.

There are three specific categories where I set expectations.

The first thing I do is to explain my relationship to the markets. I make it clear that I have no control over the financial markets and that I never try to predict them. We build portfolios primarily based upon time horizons, risk tolerances and probabilities of outcomes.

I also make it crystal clear that in the short term, working with me may yield great financial results, or we could see a sizable reduction in their account values.

One of the mantras I’ve repeated in first meetings throughout my career goes something like this: “Over the next 20 years, I’m extremely confident that our financial planning and investment management will yield the results you are seeking. However, I have no idea what our first year will look like. It could be that you make so much money that you want me to join your family. Or it could be such a lousy year that you’ll want to throw a brick through my office window. I want to be crystal clear that I have absolutely no idea what our first year will look like.”

During those periods where the initial investment experience is poor, I carefully remind my clients of this conversation.

The next thing I discuss with new clients is the value that I, as a certified financial planner, will bring to the relationship. This includes the comprehensive planning that will not only optimize their current financial assets, but also create a path to future financial prosperity. Then I outline the guidance that I will provide as life unfolds, both externally (the economy) as well as internally (spending habits, health emergencies, major purchases). The biggest value we provide for clients is keeping them from making behavioral finance mistakes from which they can’t recover.

Lastly, I set expectations for our communication cadence. Unless you describe the frequency and types of communications you’ll have, human nature being what it is, the client will imagine a cadence and begrudge you for not achieving it.

Taking the time to emphasize these conversations can be the deciding factor between clients becoming lifelong business partners, or having the relationships quickly devolve to where their resentment overshadows the value you bring to their lives.

Scott Hanson is co-founder of Allworth Financial, formerly Hanson McClain Advisors, a fee-based RIA with $15 billion in AUM.