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Establishing Appropriate Client Expectations

Establishing Appropriate Client Expectations

Managing Client Expectations

Whenever a client or prospect enters a financial advisor’s office, he or she will come in with pre-conceived ideas, opinions and expectations, both conscious and unconscious. The foundation of any strong advisor-client relationship is communication.  Typically, advisors hold detailed conversations in an attempt to explore client goals and objectives, but that may not be enough.  Top tier advisors also include a detailed discussion of the client or prospect's beliefs and expectations – relating not only to their investments, but also to the advisor. Here are a few best practices to keep in mind during the conversation:

• Ask questions to learn about the person’s past experiences with their investments and any financial professionals with whom they may have worked.  This will help you gain a better understanding of the client’s unconscious beliefs and expectations. Contrary to what many advisors believe, client expectations do not rest solely on investment performance – they also depend on the level of service and their perception of the responsiveness they receive from their advisor.

• Pay close attention to any clues a prospect may offer regarding a relationship with a previous advisor that may have been severed. These clues can indicate whether the client has unreasonable expectations that will be hard to influence or change.

• If a person has unrealistic expectations, either for advisor service levels or the investment markets, it is going to be very hard to please that prospect or client.  A wise decision should be made in regard to whether or not you retain that prospect.



Once the client’s perspective has been explored, the next step is to communicate clear parameters for what might be expected from you. It is important to lay the groundwork for exactly which services you will offer.  You should also carefully review both those things you can control and that which is out of your hands. It’s important from the outset to remind clients and prospects of the variable nature of investment markets while highlighting the role that a prudent long-term strategy can offer in helping to smooth inevitable market fluctuations.



Many advisors use tools such as a “Risk Tolerance Questionnaire” to help measure client beliefs and expectations. Experts have found that the way a problem is worded, or framed, may have a lot to do with how a client will answer the questionnaire. When it comes to managing client expectations, framing is particularly important when exploring the following:


Discussing risk. We should never assume that an investor fully understands his or her own tolerance for risk. In addition, it is important to realize that a person’s risk tolerance can change over time. There really is not a permanent measurement tool one can use. Advisors should have ongoing conversations with clients to determine tolerances for risk based on current circumstances. As part of that conversation, instead of asking how much risk the client can tolerate, you might ask, “How much can you afford to lose before you will have to change your plans for the future?” By helping clients understand the potential cost of a risky strategy, you will be able to better determine how much tolerance they might have while helping them focus on protecting assets instead of just pursuing gains.


Managing risk. Investors may not fully understand the nature of risk-management strategies. It’s important to make certain investors understand the nature and implications of these strategies and to set correct expectations early on. Clients need to know that if their portfolio includes investments whose objective seeks to help protect against loss during market downturns, these investments can potentially receive lower gains during market upswings. And if their portfolio earns higher returns during market upturns, it can potentially lose more during market declines. By clearly laying out this dynamic, you will help set proper expectations for how these strategies work in good times and bad.


Discussing diversification. Most investors have heard that diversification(1) is a good thing, but may not fully understand how it works. They may be unhappy when certain uncorrelated investments in their portfolio underperform or lose value.  Advisors need to clearly explain that, by their very nature, some investments may decline in value when the overall stock market is rallying, but these same investments may increase in value when the stock market declines. Be prepared to revisit this discussion regularly to help educate clients on how the strategy of diversification is designed to work.



Client attitudes and expectations do not remain constant. Clients are influenced by current economic conditions as well as the input they receive from family, coworkers and the financial media. For this reason, monitoring client expectations should be a regular occurrence at all client review meetings.  Implementing this best practice can make a significant difference in terms of identifying and addressing possible client dissatisfaction or confusion before it becomes a problem.



While managing expectations, a client’s openness to new information will depend heavily on how much they trust the advisor. To build greater trust, make sure to touch base with clients regularly, and establish yourself as an expert and a valuable resource. Do what you say you will do, be upfront about fees and compensation, and find new ways to communicate frequently with clients to help influence their expectations.




(1)Neither diversification nor asset allocation necessarily protects an investor from loss in a volatile or declining market.


Keith Johnson is vice president of Practice Management for Curian Capital, responsible for advisor-facing educational content, sales and marketing presentations, tools and resources.  Practice Management works closely with the organization’s broker-dealer partners offering business consulting and coaching programs that enable financial advisors to improve the efficiency, productivity and profitability of their practices.


Curian Capital, LLC, a Registered Investment Advisor, provides customized investment management products and services. Curian Clearing LLC (member FINRA/SIPC) is the exclusive broker for these programs, for which it provides brokerage execution, processing and custody services. Investing in securities involves certain risks, including possible loss of principal.  The information, data, analysis and opinions presented herein do not constitute investment advice; are provided solely for information purposes and are not an offer to buy or sell a security. 

For more complete information on the Curian customized investment management products and services, including fees and expenses, please ask your Financial Professional for a free Wrap Fee Brochure.  If you don’t have a Financial Professional, call Curian toll- free at 1-877-847-4143 for the brochure.  Please read the Wrap Fee Program Brochure carefully before you invest or send money.

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