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What You'll Learn In Today's Episode:

  • The reasons why accounts might be down and why it’s important to be prepared.
  • How to provide clarity on the direction they need to go at this point.
  • The importance of understanding where your clients’ head is going.
  • The key to preparing for dramatic changes in the market.
  • Why being consistent and having integrity is so crucial.
  • Why doing market forecasting is not advisable.
  • How to put things properly in perspective.

After wrapping up some incredible masterminds, Matthew and Micah come back today excited to talk about how to communicate with clients when their accounts go down in value. Rather than giving clients a 72-page document on probabilities of success, there are some key ways to prepare them and set expectations reasonably to make these conversations clearer.

Matthew and Micah discuss ways that you can educate clients properly and set them up successfully for whatever moves the market makes. They discuss the discomfort clients feel when seeing investments go down and share how they ensure that clients are properly informed of their options and how to stay calm in moments of “loss.”

  • Today is your lucky day! Take this quiz and find out what the  #1 success killer is in your practice. Identify the pain points that are slowly killing your RIA and preventing you from achieving success, in only 2 minutes.

    Whether it is time management, processes, value ads, or your marketing unlock access to some of the premium resources Matthew Jarvis, CFP®, and Micah Shilanski, CFP®, have already implemented (successfully!) and are sharing with our BackStage Pass members.

Podcast Article:

What to Say When Your Client’s Account Takes a Hit

Set the right expectations during the good times, and you’ll help your clients confidently weather the bad ones.

Clients are always happy when their accounts are bringing in value, but what do you say to a client when they’re concerned about a recent market downturn? In this article, Matthew Jarvis and Micah Shilanski, hosts of The Perfect RIA podcast, share three crucial tips to help any financial advisor face that inevitable conversation with confidence.

Action Items in This Article

  • Register for the 2022 #XYPNLive conference and attend Matthew Jarvis, Micah Shilanski, Benjamin Brandt, and Steven Jarvis’s event, “The Perfect RIA Panel of Success,” on October 8. You’ll learn the systems and practices that will launch your financial practice to the next level.
  • Create a foundational piece of communication that you’ll use in every single meeting to set good client expectations for the future.
  • Make sure your rockstar team truly understands your approach to financial management so they don’t sound rattled when clients call about their account value. Remember, a declining market isn’t an anomaly; it’s just part of the plan.

What to Do When Your Client’s Account Takes a Hit

For a financial advisor, happy clients mean more referrals, fewer lost accounts, and better business. But the truth is, your clients don’t really care about their account going up and down—or, at least, that isn’t their sole reason for calling your office when they’re concerned about the market. The question they really want answered is: “Can I stay retired?”

But if you wait until the markets are on a decline to get clients invested in your plan, you’ve missed the moment. It’s crucial to set that “big-picture” foundation before the market goes down so no matter what happens, you can look your client in the eye and say, “We knew this would happen, and we’re dealing with it using the very strategy we said we would use.”

By following these three principles of financial management, you’ll prepare your clients and their accounts to confidently face any turmoil the markets bring their way.

Never Try to Predict the Unpredictable

It hurts when Bob and Sue come in for a meeting scared and desperate to know how long a market downturn will last, and it’s hard not to give them the answers they seek. But no one can predict the markets, and if you attempt it, you risk being wrong in front of your client. Not a way to instill confidence in your ability to manage their wealth!

“This is why I never, ever do any kind of market forecasting with clients,” Matthew agrees. “‘When do you think the markets will go up? When do you think they’ll go down?’ I have no projections on that, because I never want to have to sit down with a client and say, ‘You know what? We thought rates were going to go the other way, and now your portfolio is way off.’”

Instead, assure your clients that while you may not know exactly what’s coming and when, you know you’re prepared for it. This is the explanation Matthew uses to quell his clients’ fears: “Three out of every seven years, the market goes down. This is probably one of those years. But great news: we have an all-weather portfolio that was designed for those ups and downs.”

By reminding clients they’re prepared for every eventuality, they’ll have the peace of mind to focus on what’s really important: their retirement. 

Stay the Course

When turmoil hits the marketplace, you understand this is just another storm to weather—but it’s only natural for your clients to feel anxiety about their accounts, and they’ll be looking to you for guidance. It’s crucial that you steer them into the future with a steady hand.

Micah explains, “Here’s what I know in my heart of hearts: If we hold to the plan, if we hold to a long-term strategy, the market prevails over time. Historically, it just does. And I think that’s going to keep going forward. I’ve got a lot of faith in the United States.” He truly believes in his plans for his clients, and that belief helps him hold firm even when the forecast looks grim.

If you suddenly start tweaking Bob and Sue’s portfolio when the market is down—doing things differently than you said you would back when you explained your “all-weather” plan—you’ll make them fear they’re heading toward bankruptcy. But if you stay the course and show them you believe in your strategy, your confidence will assure them they’re on the right track toward a happy retirement. 

Keep Widening the Lens

Some financial advisors cringe at the thought of speaking to a client whose account has recently lost money, but Matthew approaches these conversations by reframing the situation. “I never like to use the word lost,” he explains. “I like to say, ‘We had all this growth the last three years. Today, we gave back some of that growth.’”

This reframing is only possible because of the important groundwork laid at the beginning and throughout the client relationship. To keep that long view front of mind for clients, Micah jokes often that the market will crash on two important events: the day they begin investing and the day they retire. That’s Murphy’s Law: anything that can go wrong will go wrong.

Of course, no one can guarantee what will happen in the future. But by helping clients understand you’ve baked every possible scenario into your plans, you’re setting important expectations that will help them see the big picture throughout their financial journey.

 

Resources In Today's Episode:

Read the Transcript Below:

This is The Perfect RIA, in case you didn’t know. Bringing you all the strategies to help your business grow. Are you happy? Are you satisfied? Are you hanging on the edge of your seat? Sit back and listen in while you feel the beat. Another myth bites the dust…

Micah Shilanski: Can you explain to me why I lost $50,000 in one month? Where’d the money go?

Matthew Jarvis: Hello, everyone and welcome to another episode of The Perfect RIA Podcast. I am your co-host and co-founder Matthew Jarvis. And with me, the man, the myth, the legend, Micah Shilanski. Micah, how are you, my friend?

Micah Shilanski: Jarvis, I’m doing absolutely fantastic. Super excited. We got so many hot things cooking. Just wrapping up surge, well, relatively, a couple of weeks ago, so still on that debrief high of those things. We’ve got some amazing things taking place. Just did an open cart with you and some kick-ass webinars, quite frankly, that we went through. They were really focused about taxes. So I’m all kinds of hyped up.

Matthew Jarvis: Oh, I love it. I love it. Of course, by the time this airs, we’ll have just come back from an Invictus Mastermind in Nashville.

Micah Shilanski: That’s right.

Matthew Jarvis: We’ll have just come back from our Personal Mastermind in Atlanta with several just really rockstar advisors. So always fired up and excited from that. Now, Micah, today we want to talk about how to talk with clients when their accounts have gone down in value. And this came up because I was visiting an advisor’s office, and I said, “Hey, show me your meeting packet. Show me the information that you show to a client during a client meeting, during a review meeting.” And they showed me, amongst other things, the statement from their custodian, right, which they all look basically the same, right, Micah?

Micah Shilanski: Right.

Matthew Jarvis: Plus, minuses, gains, losses for the month.

Micah Shilanski: Bunch of worthless information. Yes.

Matthew Jarvis: Yeah. So, that’s it. The only thing more useless in a custodian statement is when you log into a custodian’s online portal and it shows gain and losses for the day, right?

Micah Shilanski: Or for the last 12 seconds, right?

Matthew Jarvis: Yes. Just the worst information. So I ask these advisors, I say, “If this is the information you’re presenting to clients, how does the discussion go when that month is down? Let’s say it’s down by $50,000. How do you have that discussion with them when all they’re seeing is, ‘I lost $50,000’?” And, Micah, I was surprised they didn’t have a lot to offer there, which is why we wanted to do this episode today.

Micah Shilanski: Fascinating. Yeah. This is something that comes up. Now, this can come up in many different ways, right? One of the things we’re going to talk about is client communication, because this could come up in a very simple way. You did a Roth conversion but failed to communicate. It was going to come out of a client’s account. They open up their IRA statement. Their IRA’s down by 50 grand and the market’s up, right? What are you going to say in those things? How have you set expectations with the client?

Micah Shilanski: Or we’re going to have market hiccups like we have right now, right, where the market is being volatile and it’s going to be down. Down for the first quarter, great. What’s your plan when you’re meeting with clients in that period in time? Are you going to panic? How are you going to explain things? How are you going to give confidence? Probably the best approach would be just to give them a 72 page document of probability of success that these are normal things. Clearly, that’s going to communicate the best answer for your client. And if you cannot tell, that was sarcasm.

Matthew Jarvis: That was sarcasm. Though, there seems to be, and maybe this is us patting ourselves on the back, it seems to be, if we rant about something for a couple of times on the podcast, at least where we look in the industry starts to move. I have now seen all of the big technology providers now offering what they call one page financial plans.

Micah Shilanski: I know where that came from.

Matthew Jarvis: And right at the top it says you’re like 73% probability of success, which, let me explain to you what that means to a client. Nothing.

Micah Shilanski: Nothing.

Matthew Jarvis: It means nothing to them.

Micah Shilanski: Nothing. Well, and let’s just say they understand… And this is not putting down clients, right?

Matthew Jarvis: No, no.

Micah Shilanski: Clients, at least my clientele, is extremely well-educated. They’re extremely smart in what they do. This is not what they do. That is why they hired us, right? So we need to make it as clear as possible. And sometimes a 73% chance of success, by the way, from a well-educated person, that’s a C, and it might as well be a D, right? Because, come on, you talk about school, you talk about education. They’re always striving for 90 plus percent. So now even if you like those percentages, those are failing percentages for a large group of investors that are there, on top of, they can’t understand it in the entire context of things.

Matthew Jarvis: It also doesn’t give them, here we’re kind of on an aside right here, it doesn’t give them any clear direction to go.

Micah Shilanski: True.

Matthew Jarvis: So you say, “Oh, I know you lost 50,000 this month. We have issue number one there. But you know what? You went from an 83% probability of success to an 81 percent. We’re still okay.” But it doesn’t give the client any action. “When are we not okay? At 79, at 62, at 13? What should I do? Should I spend less? Should I contribute more? What does this mean?” So there’s not a translation. Micah, please.

Micah Shilanski: Yeah. I was going to say, well, Jarvis, when it gets down to 62, what do I do? Right? Oh, okay. They’re like, “It blows up and I got to go back to work? I mean, what exactly has to happen?” I love that. Yeah.

Matthew Jarvis: Yeah. So let’s go back to our, the client’s looking at the statement and it’s down $50,000 a month for that month. Micah, the first thing I always want to do is provide context for that dollar amount, right? Now, if it was a $60,000 account and it’s down $50,000, we probably have a big problem here. If it’s a $4 million account and it’s down $50,000, it’s still $50,000, right? That client still remembers when 50 grand was all the money in the world. But we can look back, assuming you have the technology to do it, and say, “Mr. and Mrs. Client, this represents about six months of growth,” or whatever period of time. “We’re back to where we were four months ago.”

Micah Shilanski: Yeah. I love that. Right? It puts it in context. We’ve been here before, right?

Matthew Jarvis: Mm-hmm.

Micah Shilanski: One of the things, Jarvis, I always like to tell clients is they’re like, “Well, it’s down off the high.” And I’ll look at them and be funny about it. I’ll say, “Well, it’s always off of the high, right? Because the high is the high, right? So either we’re setting a new high or we’re off of the high. That’s it. That’s the only place that we can be.” And so they’ll laugh a little bit about that. But then we’ll step back and say, “Hey, what has this done for the last couple of years for you?” Right?

Micah Shilanski: Now, if you’re watching this on YouTube, I actually step back. I will actually lean back in my chair when I’m having this conversation, because I want to show them, changing that reality, “We’re going to step back and look at this in a larger time period. And when we do that from 12 months ago, from 24 months, or one year, two year, five years, right, how much has your money grown over this period in time?” I say, “That’s great. Over the last five years, you’ve grown over a million dollars inside of your account. You’ve grown over $500,000 inside of your account. And in the last five years, have we seen your account go up and down before?” They’ll go, “Yeah, absolutely.”

Matthew Jarvis: Of course.

Micah Shilanski: I say, “Great. Perfect. This is normal.” And now that they know it’s normal, right, now it’s not this big alarm that says, “Oh my gosh, the media’s talking about this. The markets are falling. I have a friend that just lost X in TSB, and they just sold all the money out,” I say, “Great. This is normal. Because guess what? Market volatility is normal. And it’s totally fine if we have a rock solid plan.”

Matthew Jarvis: I love that line you used, Micah, “Let’s take a step back and look at this.” Right? That’s a nice, easy one to use. Another one I like to always use is… I never like to use the word lost unless we, in fact, lost money, like we had an option that expired or something, which we don’t do so that’s not an issue. I also like, “Today we gave back some of our growth. We had all this growth the last-

Micah Shilanski: Perfect.

Matthew Jarvis: … three years. We gave some of that back.” Micah, what if it’s a new client and Murphy’s law has struck and they become a client and the market goes down several consecutive months? So you don’t have anything to look back on. You can’t say, “Look at this money we made before.” All they see is, “Micah, since I’ve hired you…” I won’t put your name in this. “Jarvis, since I’ve hired you, we’ve done nothing but lose money.” How do you handle that situation?

Micah Shilanski: Boy, that’s so great. All right, this is going to go back to setting expectations, right? Now, in one of the previous podcasts I think we just did, Jarvis, when you were in my office, we actually talked about this, setting expectations. And I jokingly say I make two promises to clients whenever they’re going to invest money. Promise number one is that as soon as they invest money, they start putting money in, the market’s going to crash. Right? And number two, the day they retire, the market’s going to crash. Right? That’s Murphy’s law. So we know that’s going to happen.

Micah Shilanski: Now, why do I bring it up? Of course, I’m not guaranteeing or promising anything, right? This is a joke. But this is the aspect of saying, “We have to set expectations that we are already expecting this market to go down.” Now what’s going to happen is after that, I’m going to explain, and go watch our previous podcast where we go through buckets which clearly outlines this, what our plan is when the market goes down. Now, the client retires. They’ve just brought on, they’ve just transferred all of their money. And the market falls. It goes down 50,000, 100,000, $200,000, right, whatever that dollar amount is. You know what they say when they come in? “Wow, Micah, you were right.”

Matthew Jarvis: “You told me.”

Micah Shilanski: “The market did go down.” Yeah. “You told me this was going to happen. I am so glad we have two years of living expenses in cash. I am so glad we have three years in bonds.” Right? They’re so glad they have these buckets set up that are outside the stock market, because we told them the market was going to go down. Now, did we know the market was going to go down? No, not anymore than anyone else knows that it’s going to be volatile, but I need to plan for a couple of things. I’m just so much on a soapbox, Jarvis. Sorry.

Matthew Jarvis: I love it.

Micah Shilanski: My biggest thing with the plan that we have is to keep investors invested, because here’s what I know in my heart of hearts. If we hold to the plan, if we hold to a long-term strategy, the market prevails over time. It just does, right? Historically, it just does. And I think that’s going to keep going forward. I got a lot of faith in the United States. So that being the case, I need a plan to keep them invested. Hence the buckets, hence the five years of protected money that allows them their safety net. Because, Jarvis, in my opinion, I want to know your thoughts on this, the clients really don’t care, correction, they’re not solely focused on their accountant going up and down, right? That’s a superficial question. The deeper question is, “Can I stay retired?”

Matthew Jarvis: Because clients have the same head trash that we all have. We’ve talked on this podcast numerous times-

Micah Shilanski: Oh, sure.

Matthew Jarvis: … about the head trash we have as advisors when it comes to implementing surge meetings, or raising fees, or these things. We all have this in our mind that, “If I do X, if I stop checking my email 10 times a day, my best clients will leave me. They’ll take all the rest of the clients with me. That my spouse and my children will disown me, and I’ll hold up a sign, ‘Will financial plan for food.'” Clients think the same way because, newsflash, they’re human too. And when they see their account go down, whatever that is on a relative basis doesn’t matter. They see it go down. They think, “At this rate, I will shortly be broke, and I’ll be going to my children or welfare.” And that’s where their head goes. And so, Micah, to your point, we have to set the stage for this. If you’re only talking about the war chest or buckets when the market’s go down, you’ve missed it.

Micah Shilanski: Missed it.

Matthew Jarvis: You have to stockpile when times are good. So either when times are good and when I’m taking on new clients, I always have this discussion with them, Micah, right? We talk about the war chest. And I always rephrase it, I say, “Mr. and Mrs. Client, Murphy’s law is that when you retire, the markets will go down and they’ll go down dramatically. In fact, Mr. and Mrs. Client, that’s Murphy’s law of investing in general. Whenever you need money, the markets will be down. And the more money you need, the further down the markets will be.” And we smile and we laugh, Micah, just like you, but that’s why I look at the war chest. “Hey, we have a five year buffer.”

Matthew Jarvis: Also, Micah, it helps us whatever that loss is accompanied with. So the market’s down, and inflation’s going, the war with Russia, whatever the case is, the client says, “Oh my goodness, not only is the market down, but this proves it will keep going down.” “Cool. Do you think it will take more than five years to sort this thing out?” And then they’ll stop and think about it and they’ll say, “No. I mean, either the whole world has ended, in which case it doesn’t matter, or, yeah, we’ve probably sorted this out in a couple years.” “Cool.”

Micah Shilanski: I love it.

Matthew Jarvis: But the important part here is I set this foundation before the market went down. I’m not trying to cover up. Micah, you’re the same way. When the market’s going down, we’re saying, “This is what we said would happen, and here’s the strategy we said we would use, and we’re using it.”

Micah Shilanski: Yeah. We’re being consistent, right? Now, just like we could boil this back to calling a client at the time you’re supposed to call the client. “Are you doing the things you said you’re going to do?” This is an integrity question, right? Whether clients can articulate that or not, that’s what’s going on in the back of their mind. Jarvis and I, our clients will laugh because if their appointment’s at 11 o’clock, we will call them immediately at 11 o’clock. And my clients still joke about me and say, you know what? They could set their clock based on when I call, because I’m going to commit to what I said I’m going to do.

Micah Shilanski: And it’s the same thing with the investment plan. These are very much correlated, believe it or not. “Are you being consistent in your beliefs? Are you being consistent in your actions?” Now it comes to the test of fire that says, “Okay, the market’s down 20%. What are you really going to do? And is this really, the plan, going to work?” If all of a sudden you start making tons of tweaks, if all of a sudden you start having a different portfolio, you start really rebalancing and doing things differently than what you said you were going to do, this is going to create a lot of scarce, or at least a lot of scarcity, a lot of fear in your clients, right, about saying, “Holy crap, what are you actually doing? Is this a normal thing that the market’s going down, or is this like a, ‘Oh crap,’ a 2008 thing, and I’m going to be bankrupt?”

Matthew Jarvis: Yeah. I think related to that, Micah, I never want to be wrong in front of a client. This doesn’t mean I don’t ever make mistakes.

Micah Shilanski: Amen.

Matthew Jarvis: We’ve talked about that and when you make a mistake, how to own that. This is why I never, ever with clients do any kind of market forecasting. “When do you think the markets will go up?” “When they start going up.” “When do you think they’ll go down? When do you think inflation will?” I have no projections on that, no prognostication. Because I want to come in with them. I never want to have to sit down with a client, Micah, and say, “Oh, you know what? We thought rates were going to go the other way, and now the portfolio’s way off.” Nope. “Great news. We have an all-weather portfolio that was designed for ups and downs. Because three out of every seven years the market goes down. This is probably one of those years. We were prepared for this.” So don’t back yourself into a corner by predicting what strategy is going to work, what thing is going to go on, because you risk being wrong. And, Micah, same with the integrity. Once the client sees that you’re wrong about things, the confidence starts to erode.

Micah Shilanski: I love it. Jarvis, the thing that I like to do, I’m going to go back to something you said-

Matthew Jarvis: Of course.

Micah Shilanski: … you say, “Do you think this is going to last longer than five years?” Right? I love that question that’s there. I like to seed it a little bit with 2008, right?

Matthew Jarvis: Yes.

Micah Shilanski: “Remember 2008 where it took five years to get back to even?” And I’ll use my fingers, right? “’08, ’09, ’10, ’11, ’12.” Right? I’ll go through it with the client. And then from there, I’m going to say, “Okay, do you think this is going to be like a 2008, or worse?” Because I want to give them something to measure this to. “You know what? I don’t really think this is a total financial collapse and borderline of our banking system that we had back in ’08.” “Okay, great. So then do we think it’s going to take less than five years?” “Yes.” “Okay. Perfect.” Now, Jarvis, and we’ve talked about this before, but it’s important on the podcast, what if they said, “You know what? I don’t think five years is enough. I think we got to have six years. I think we got to have six years of money set aside,” what would you do?

Matthew Jarvis: Yeah. So if they want to go from five to six, so our rule internally, if they want to go plus or minus one allocation, right, from 70/30 to 60/40, or plus or minus one, not really a big deal. I’m willing to budget, unless the markets are way… If the markets are in a deep hole, I’m really going to push back hard.

Micah Shilanski: Sure.

Matthew Jarvis: If we’re seeing a little bit of turbulence and they’re saying, “Hey, I really wish this was six years, not five years.” “Okay, cool. Let’s do that.” If we’re in the depths of it and they’re saying, “Hey, we need to go from five years to 10 years,” that doesn’t work, because now we don’t have enough equity to get us out of this hole. And that’s, again, how I’m going to position it. “I know it sounds like a great idea to get six, seven, eight, nine, 10 years. The trick, if we do that, we won’t have enough equity to get us back out of this hole.” And if that keeps pushing, I’ll say, “Hey, I can’t be the captain of a sinking ship, because we just won’t make it out of this.”

Micah Shilanski: And that’s a really cool part about using, and I want to get to, action items with a client, right? Because we were just making fun of the 100 page plans that don’t give action items or clear guidance, so let’s make sure we address that. But that’s also one of the cool parts about the dynamic distribution, right? And, Jarvis, I took this one directly from you, about saying, “Okay great. This is the tolerance that we have to be inside of it.” Now, if a client, let’s say they got $4 million and they’re taking out 50 grand a year. Okay, quick math, we all know they’re going to be just fine. Right?

Matthew Jarvis: Yeah.

Micah Shilanski: So in that case, if a client just wants to put more money in cash because it makes them feel better, as long as it doesn’t violate their distributions, I’m totally fine with that. Right? I mean, that’s the guidance that I’m going to have. The minute it’s going to violate your potential distributions in the future, right, that equity portion we need to have, okay, now that’s a red flag. No, we got to have a conversation. We got to do that. But as long as they’re within their distribution model that we can move things around, sure, that doesn’t hurt anything. Right? So if it’s going to give someone a little bit more comfort to say, “We have six years versus five years,” great. How often do we have that? Rare. Very, very rare.

Matthew Jarvis: Very rare. Yeah.

Micah Shilanski: I mean, five years is a nice, long buffer.

Matthew Jarvis: Yeah. Micah, I talked about a scenario in my book about a client who called in during the middle of the COVID panic saying, “Matthew, I want to go from five years to 10 years of buffer,” which would have… Let’s do the math on this here. Now we’re talking about a 50/50 or a 40/60 allocation. It just doesn’t work. And so I said, “Yeah,” we’ll call her Sue, “Sue, tell me a little bit more about this. I get that it’s scary.” And she says, “Hey, this time it’s really different, blah, blah, blah.” Anyway, probed, probed, probed, discovered that she has stage three cancer and she was worried that she was going to die before the markets came back up.

Matthew Jarvis: But more so, I got that layer and I said, “Well, do you think your son, you’re only heir, do you think he’s going to panic sell when you pass away?” And she says, “No, absolutely not. He’s a smart kid.” “Cool. So what else is going on there?” She says, “I’m worried that my granddaughters won’t have money for college.” “Ah, okay.” So there’s the issue, right, Micah? We talk about this, the issue behind the issue. “Perfect, Sue, what if we set aside enough money in an account to cover their education? How much do you think that’s going to be?”

Matthew Jarvis: “I don’t know. It’s 200,000,” it’s whatever number she said. “Cool. Let’s set that aside in a designated account, not a corner of an existing account, a designated account. Let’s use that as our war chest and we’re set.” And she was good to go. But that would have been an easy one to miss. It would have been easy to say, “Sue, you have a 78% probability of success,” and the blah, blah, blah, blah, blah, blah, blah didn’t cover her issue of, “I’m going to die and my granddaughters won’t be able to go to college.”

Micah Shilanski: Right. Which is super easy to solve for her, right? Oh, perfect-

Matthew Jarvis: Once you get to it, right?

Micah Shilanski: Once we get to it, right? The probing questions on this are so, so big.

Speaker 3: The Perfect RIA challenges financial advisor to answer the question, what would you do if you weren’t afraid? Surround yourself with the financial advisors who share your common values and goals towards success. The advisor is you. The time is now. Don’t be like most people who fail to take action and achieve their dreams. Go online today at theperfectria.com and decide, decide what type of financial advisor you plan to be.

Micah Shilanski: All right. So, Jarvis, let’s transition and let’s talk about not action items for advisors just yet, let’s talk about the client’s aspect of things, right? Let’s go over, real quick, that guardrails aspect of it where we have these high, low numbers in here. And I don’t focus on the high one too often, but that low one is so powerful.

Matthew Jarvis: Yeah. And the low one, and we’ve done some presentations on this and you can find it in past podcasts, and of course, for Backstage Pass and Invictus members, there’s countless videos in the archives on that.

Micah Shilanski: That’s right.

Matthew Jarvis: So, Micah, let’s say that the client has a million dollars, easy math, so they’re getting about $54,000 a year off of that, gross taxes come off. We’ll put their lower guardrail about 800,000. And so I draw it out. By the way, any financial concept you can’t draw on a piece of paper is not a good financial concept, just as a rule of thumb. So I draw that out. I say, “Mr. and Mrs. Client, right now, we have about a $200,000 buffer. If we get to this lower buffer because of the market going down, or maybe you take out a big lump sum of money to buy an RV and travel the country, then we’ll need to tighten our belts.”

Matthew Jarvis: And you can’t see this because it’s off screen, I make this tighten my belt gesture. “We’re going to tighten our belt. We’ll probably need to cut back on travel a little bit, because your income will go from about 54,000 a year to about 49,000 a year.” Now, usually, I’m going to translate this into monthly numbers, but, Micah, not off the top of my head, and that way they know. So a client comes in, they say, “Matthew, I know we still have 100,000 of buffer yet, but I want to do something.” “Cool. Let’s go ahead and reduce income to that lower buffer number. You don’t need to, but if you want to do something, here’s something you can do.”

Micah Shilanski: And I love that because this allows the client to take action when these things are happening, right? Now, they could come back in and say, “Well, I don’t want to have less income. I want to go do all the things I want to do.” “Okay, great. Then we need to hold to our investment plan.” Right? But this is now empowering the client with their choice of saying, “Okay, great. If we’re really concerned about this, then let’s take that 10% reduction in income.”

Micah Shilanski: Another great planning tip that I use, Jarvis, is I actually do the same thing when clients want to spend this money before they do it. So let’s take that RV, right? They want to go spend $150,000 on an RV. I say, “That’s great. Here’s what I want to do. We’re going to now cut your income just like you had bought that RV. We’re going to reduce it by 10%, because your account had gone down in value, and let’s do that for six months and while you’re shopping for RV, and let’s make sure it’s what you want to do.” Right?

Micah Shilanski: And if you want to talk about if somebody is really committed to buying something, have them spend the money for it but not get the toy. Right? And then all of a sudden, this is now really real. “Do I really like this or not?” And it’s a great check and balance with a client, especially when you have one spouse that wants it and one spouse that doesn’t. Right? So, “It’s perfect. Let’s simulate having it, right? Let’s simulate retirement.” We’re really big into this with our clients about looking in the future, simulating things in advance.

Micah Shilanski: “Let’s simulate that now and let’s practice like we had it and let’s see if you really like it or not.” And guess what? If you are making the payments and you’re really excited about getting the RV, this was a good decision. If you’re making the payments but you don’t have the RV and you’re saying, “This sucks. I don’t have the money to do the things I want, and yada, yada,” then don’t go buy the RV. Because, guess what? After you buy the RV, you’re still going to want to do everything you’re doing today. You’re not alternating money, right?

Matthew Jarvis: No, no.

Micah Shilanski: You’re saying, “Great. I want to buy the RV and I still want to travel to Europe. I still want to go to Iceland, right? I still want to go do all these things.”

Matthew Jarvis: Micah, you mentioned that just briefly, simulating retirement. I do that all the time when I have a client who’s coming up to retirement and their net retirement income will be less than their current net income.

Micah Shilanski: Oh, yes.

Matthew Jarvis: “It’s perfect. Great news. Let’s go ahead and start living on that now. We’ll bank aside the difference.” I am not going to go down to, I think this is where advisors make mistakes, I’m not going to say, “Mr. and Mrs. Client, would you please give me your bank statement and your credit card statement so that I can line an item and decide if you’re paying too much for your Comcast internet.” I am never going to go there. I’m going to just say, “Listen, you’re living on 5K a net right now. You can only do 4,500 in retirement. You’re going to have to figure out where that 500 goes. And just to make sure that we’re real with ourselves, let’s not do it cold turkey. Let’s start now and ease into it.”

Micah Shilanski: I love it.

Matthew Jarvis: So knowing these small things, again, I feel like we’re beating up on these big plans, but a big plan doesn’t help me solve a $500 gap. Telling them to live on that less now, that solves my problem.

Micah Shilanski: Couple of pro tips that’s inside of here. So we can do income buckets, right?

Matthew Jarvis: Yes.

Micah Shilanski: Because buckets are just phenomenal.

Matthew Jarvis: Love it.

Micah Shilanski: So we do income buckets with clients. And so what this is, if a client’s getting ready to retire, right, we’ll actually take their entire pay, 100% of their pay of the allotment, we’re going to put it in a Schwab account. Then from that Schwab account, we’re then going to pay them their retirement income, right?

Matthew Jarvis: Love it.

Micah Shilanski: Because federal employees just went from a paycheck every two weeks to one paycheck a month. So, okay, great, now this is different. Let’s simulate this in advance. Let’s have them do it a year in advance. And it makes clients very, very uncomfortable to do this. Rightfully so, right? Because it’s different. “I haven’t done this in 30 years.” But they’re going to be doing it in 12 months and 18 months, whatever that time period is. And by simulating it now, we’re going to flush out so many other problems, especially if we’re reducing their income, right? If your income has to go down, man, we’ve got to be living on that today to make sure this is the right number.

Matthew Jarvis: I love that. Micah, I want to pivot just a little bit to technology and handouts as it relates to this discussion, right?

Micah Shilanski: Oh, yeah.

Matthew Jarvis: So when I sit down with a client, I know similar to you, we have a printout from Orion, our performance reporting software. So I can show them life to date or inception to date growth as a dollar amount, not a percentage. That way I can look and say, “Here’s how many months of growth we’ve given up.” And then I’ll always have a printout of the guardrails. So we can look at the guardrails and say, “Here’s where your portfolio is relative to these rails.” Those are the only two pieces I need.

Matthew Jarvis: Yes, I have some other things, whatever our value add was for the quarter, maybe a piece of long-term economic commentary looking back at bear markets for 30 years or something like that, but that’s it. Those are my core foundation pieces. Clients always expect to see them. And again, when the bear markets come, I’m not pulling out something new they’ve never seen, and they’re saying, “Wait, why didn’t I see this before? Why are you changing course?” Now, you might think, “Hey, that’s not changing course. That’s page 47 of the report instead of page 12.” But for the client, “Why didn’t this come up before? Why are we changing?”

Micah Shilanski: Right.

Matthew Jarvis: I always want to come back to the same thing again and again.

Micah Shilanski: Yeah. It shows, again, that consistency, that reliability, right? They want a consistent foundation with their financial plan. They don’t want a lot of volatility, right? We don’t. We love it when we get bonuses. We hate it when we owe money. Same concept right here that you want to have in the financial plans. And, Jarvis, this last surge, we used our performance reporting virtually zero, right?

Matthew Jarvis: Yeah.

Micah Shilanski: We have it and it’s my safety net when a question comes up. But the buckets report does such a solid job answering 99% of questions that are out there. Because what does a client want to know? “Can I keep taking my income out?” Right? They really don’t want to know, “How much has my portfolio grown, or what my percentage rate of return is?” Right? So, yes, there’s some questions because they feel like they need to answer that, but I think the issue behind the issue is, “Can I keep spending what I’m spending?” That’s the real question in here. “Am I still on track for retirement?” That’s the question, and that’s what I want to get to as quickly as I can.

Matthew Jarvis: Yeah. And that’s what I want the client to focus on. Because, Micah, to your earlier point, in my heart of hearts, I want them to be successful in retirement. If we get focused in on the growth gain or loss that month, if we get focused in on the percentage gain or loss for that month or year, we’re focused on the wrong thing. Same reason why we beat up on risk tolerance questionnaires. I don’t want the client to focus on making a bad emotional decision when the markets are down. I want them to focus on, “We have a plan and we’re sticking to the plan no matter what.”

Micah Shilanski: I love it. All right. Let’s transition to some fun action items, right? Because this podcast is all about taking action and making your practice to the next level. So, great way to push your practice to the next level, XYPN has actually asked us, Jarvis and I, to come to their conference. We’re going to do a live event with them. So we’re going to do a pre-conference event and we’re going to be on a Panel of Success. So make sure you sign up now for your tickets. I know that stuff is going fast. So you can jump on our website at theperfectria.com and make sure you get signed up.

Matthew Jarvis: Yeah, we’re excited. Our good friend Benjamin Brandt is going to be there with us as well-

Micah Shilanski: That’s right.

Matthew Jarvis: … as well as Steven Jarvis from Retirement Tax Services. You can visit, I believe it’s live@xyplanning or live.xyplanning.com, or just Google it, and you can get signed up there. It’s going to be a lot of fun, Micah, I’m excited for that.

Matthew Jarvis: Action item number two, figure out what your foundational communication piece is. What is the piece that you’re going to have in every meeting? Is it, Micah, your buckets report that you get out of your custom CRM? Is it the guardrails that we get out of the Invictus toolkit? What is your one go-to? And it can be from any software, but it needs to be a one-pager that you could, if pressed, draw it in crayon next to it and not lose any of the core message.

Micah Shilanski: I love it. And the other thing, a third action item I’m going to put on there, is, does your team know how this works?

Matthew Jarvis: Oh, that’s a good one.

Micah Shilanski: Right? This is super, super important. If your client calls in, know your client. Your team should not be committing performance reports to your clients, right?

Matthew Jarvis: No, no.

Micah Shilanski: Absolutely agreed with that. But they need to have the conviction and not the concern in their voice. Market drops 20%. Your receptionist is scared on the phone, because the market dropped 20%, about her own 401(k). What message does that convey to your clients? Your team needs to know how this works. They have to be drinking the Kool-Aid. So you should be doing financial planning for your team, by the way, but you should also make sure any value add you have, go through with them how it affects them, because then it becomes real, right? It takes it from theoretical, “Oh, we give this information to clients,” to saying, “Oh, no, this is directly how it affects you on your taxes, on your retirement income, on your insurance decisions.” Right? Now it makes it real. Now your receptionist, whoever’s on your phone, your ops person, can answer that with conviction in their voice, and they’re not ruffled when the markets are volatile.

Matthew Jarvis: Boy, Micah, that’s an entire episode right there. Right? Do you have guardrails in place for your practice? Does your team know what kind of reserves that you have? Right?

Micah Shilanski: Right.

Matthew Jarvis: Are they seeing the market going down? They’re seeing client account values go down. And then are they thinking, “Oh, no, is my job next?” Right? And again, they’re human too, so they’re going straight to the worst case scenario. “The market’s off 5%. We’re all getting fired on Tuesday.” You’ve got to make sure, Micah, to your point, that that’s in there. And especially in times of turmoil.

Matthew Jarvis: So back in March when the COVID crisis was going on, I was sitting down with the team on a regular basis. “How’s everyone feeling about this? What are your thoughts? What are your concerns?” You’ve got to suss those out, because, Micah, to your point, if they get on the phone… And imagine the pilot on the airplane, I always use this example, there’s some turbulence and the pilot comes in like, “Oh, ladies and gentlemen, I don’t know what the hell’s going on up here.” I’d be pretty worried. Instead, he comes on, he’s like, “Well, ladies and gentlemen, it sounds like we’ve got some bumps along the way.” So it’s like there’s no big deal.

Micah Shilanski: No, not at all.

Matthew Jarvis: Even if every red light in the cockpit’s on, he’s like, “Well, ladies and gentlemen, we’re going to have to do an abrupt landing here.”

Micah Shilanski: That’s right. “Great news is we do these all the time. There’s nothing to worry about.”

Matthew Jarvis: “There’s nothing to worry about.” Micah, I love it. Well, for all of our listeners, final action item, be sure to share this podcast. We’re up to 40 or 50,000 downloads a month. It’s really making a difference in the industry. And if this podcast has made a difference for you and your practice and your client’s life, pass the word along. There are advisors just like you and I, like Micah, who need to learn from other great advisors. Pass this message along, share it in your social media. Add another five star review on Apple or wherever you listen to podcasts. And, Micah, I think until next time, happy planning.

Hold on before we go. Something that you need to know. This isn’t tax, legal, or investment advice. That isn’t our intent. Information designed to change lives. Financial planning can make you thrive. Start today. Don’t think twice. Be a better husband, father, mother, and wife. The Perfect RIA. The Perfect RIA.

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