By Chuck LeBeau

These are obviously tough times for financial advisors and their clients as many are wary of what lies ahead for the markets.  To add to this uncertainty, investors are questioning their advisors as many of them failed to properly protect their client’s portfolios from a downward spiral. Declines in portfolio wealth have been so well publicized that The New Yorker published a recent cartoon which depicts financial advisors being sacrificed to a volcano.  In this environment successful advisors will be those who effectively rebuild trust and loyalty.

In fact, Daniel Leemon, Chief Strategy Officer at Charles Schwab, recently was quoted saying “trust is now a competitive differentiator.” So how exactly does one rebuild trust and gain loyalty?  It really isn’t that difficult, the answer lies in providing personalized service to each client.

RIAs can provide personalized services by following these simple rules:

  1. Have a plan. Customers must know that there is a plan for managing their investments and they need to be educated to understand the logic of that plan. Remember that in this day and age, buy and hold is considered to be the absence of an intelligent strategy and exposes clients to far too much risk. Clients need to know in advance that there is a prudent plan in place to protect them if the market declines severely. They need to know that their advisor knows what to do and will not sit idly by while the value of the portfolio races toward zero.

One part of the plan would be to implement a policy of protecting each stock position by a protective trailing stop-loss that is not likely to be triggered unnecessarily. Modern computer technology allows stops to be set that are outside the range of any random price action so protecting stocks from major declines is much easier than it used to be.

  1. Communicate. Customers need to be made aware that their advisor is diligently monitoring their investments and staying on top of events that might affect their portfolio. Transparency and client communication initiated by the advisor is critical.   One should follow a regular and consistent communication plan that does not appear to tied to events affecting their investments, but rather motivated by the desire to keep the client up to date on the status of their portfolio. RIAs should contact clients every now and then even if no changes in the portfolio are being suggested.  Effective communication that reinforce the client’s belief that their advisor is watching over their investments and reassure them that the advisor’s plan is working.. Those simple unscheduled calls breed confidence and demonstrate that the RIA is keeping an eye on the investments more than just once or twice per year and that the plan is effective.
  1. Become pro-active in limiting risk. Advisors need to step up and take control of risk rather than passively sitting back and commenting about how unusual these market conditions might be.  High volatility and high risk are both here to stay. It’s time to acknowledge that high risk is the norm and do something positive to mitigate it.

Advisors need to stop making excuses and stop thinking that performance is not in their control. Although advisors have very little control of how much an investment might rise, they have more control than they realize on how much risk is allowed. A policy of protecting against losses with an effective exit strategy puts limitations on the downside but leaves the upside potential unobstructed.

A logical plan to limit risk with exits and logical position sizing will go a long way in gaining a customer’s trust and confidence. It’s not that difficult to stop feeling like a victim of the market and assume control of what is allowed to happen. An informative webinar on exactly how to do this is available at (This unique webinar shows examples of the simple two-step process that will allow advisors to precisely control risk without limiting the potential for gains.)

  1. Delegate daily portfolio monitoring. Clients expect their trusted advisors to be keeping an eye on their portfolio and they appreciate any contact that shows that their wealth is being protected. But successful advisors have many clients and many portfolios to monitor. Watching dozens or hundreds of stocks throughout the trading day is well beyond the capability and resources of the typical advisor.

This predicament can easily be solved by using a proven service like SmartStops which can monitor thousands of stocks in real time. Whenever a stock demonstrates unusually weak price action during the day, a timely email notification is promptly generated and sent to the advisor who can immediately review the situation and, if necessary, bring the problem and a suggested solution to the attention of the client. Clients who receive this personal attention will be amazed and eternally grateful for the time and effort apparently being devoted to keeping a close eye on their portfolio. Calling a client to point out a potential problem and provide a solution will build trust and loyalty like nothing else. Providing timely portfolio monitoring and solving problems is a critical personal service that most advisors are failing to provide; but it’s not that difficult if you have professional help.

Conclusions. Advisors have a rare opportunity to gain new clients who are deserting the major wire houses and seeking more personalized service. Another fruitful source of new business is the discouraged self-directed investor. A recent survey by Charles Schwab showed that 25% of the new accounts being opened by advisors were former self-directed investors who have learned that investing in a difficult market environment is much riskier than anticipated.  The days of simply buying and holding a stock in a rising market no longer exist. These investors are beginning to understand why the professionals caution –  “you should never confuse brains and a bull market.”

The opportunity is out there and now is the time for advisors to step up to the plate and demonstrate their expertise by adding value for struggling investors. Knowledge is key.  Downside risk is easily controlled while volatility creates large profits when the market goes up.  Take a look at portfolio performance since March of 2009, if only the downside had been limited in 2008 (as it easily could have been), most portfolios would be reaching new all-time highs as opposed to struggling just to recoup those preventable losses.

By educating clients on risk and showing them how it can be precisely controlled through the utilization of an intelligent and effective exit strategy, advisors will be able to regain trust, give clients confidence in the markets and build an unbreakable bond of loyalty.

Chuck LeBeau is Director of Analytics at SmartStops. He is considered to be the leading authority on exit strategies and has served as a consultant to many of the world’s largest financial institutions including a central bank and the world’s largest sovereign wealth fund. He has been an investment professional for more than 45 years and has authored many articles about investing as well as a book on technical analysis that has been published in seven languages. He was a brokerage firm executive for more than twenty years.

SmartStops is the leading provider of effective, easy-to-implement risk monitoring solutions for investment professionals and individual investors.   SmartStops enables its clients to effectively monitor and manage portfolio risk to improve returns. More information about  SmartStops can be found at

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