With the world around us in a constant state of uncertainty, it’s human nature to want a sure thing to latch onto. Financial advisors and clients alike can sometimes consider a sure thing or a safe thing as shorthand for the best thing, and that often leads to the subject of risk. It’s comforting that conventional wisdom tells us smaller, less risky growth over time is smarter than betting big and possibly losing it all. This is especially true of important financial decisions like estate planning, retirement planning, and handling life insurance, as well as during a massive unforeseen event such as the current COVID-19 pandemic that wreaks havoc on personal lives and financial systems alike.
But in finance more than any other sector, you need to put emotions aside and consider your client’s needs first. Are low-risk investments really going to work for them when you think about where they are in their lives, the monetary support they’re looking for, and the assets they’re working with?
Many newer advisors may see risk as a monolithic subject that can be addressed with a simple, catch-all plan. When you consider all the elements that factor into proper risk planning, however, from investment volatility and portfolio liquidity to securities, asset, and tax diversification, it becomes clear that risk profiles need to be individualized to find the proper balance between short-term volatility and long-term viability.
Researchers with The American College of Financial Services have repeatedly found reducing risk in savings accounts or retirement planning portfolios doesn’t track with better results: in fact, just the opposite may be true. As an advisor, you have to balance keeping your client’s best interests front and center with the knowledge that being too cautious about risk can lead to just as costly a mistake as not being cautious enough.
How do you determine what risks to take? The answer is that it largely depends on what clients you’re serving: if you work with mostly high-net-worth clients with large portfolios and high-value assets, perhaps they can get by with a little less risk. However, if you’re dealing with primarily lower- to middle-class clients, these groups have limited resources, and low-risk, low-return planning won’t cut it if they’re trying to use retirement planning to build a nest egg, find a life insurance policy that works for them, or get by day to day. The truth is that a little risk isn’t just a good idea-at times, it’s a necessity to get your clients on a stronger financial footing.
Don’t forget, however, that risk is relative to the end goals your clients set. How ambitious they’re willing to be with their money, while not always dictating what guidance you should give, should be a barometer for your financial planning advice.
Advanced Financial Planning for Every Person and Every Need
In the crowded, competitive field of financial planning, the key to success and standing out from your competition is being able to address these and other misunderstandings about your profession in conversations with clients. You need a strong, foundational curriculum focused on modern realities and educational requirements.
The American College of Financial Services can arm you with the skills needed to advise a full range of potential clients on a diverse set of issues critical to understand in today’s volatile and complex financial landscape. Visit their website to learn more about becoming a Chartered Financial Consultant, taking the CFP exam, and getting your CFP certification.
