Five Ways To Provide More Certainty For Your Clients

Yesterday, I wrote a post about the need for data to help provide some level of certainty in a volatile market. Yet there are additional ways to help provide more certainty for your clients. Here are a few ideas:

1. Focus on cash flow: Rapid expansion in deal flow based on speculation tends to lead to bubbles. Investments that bring in cash flow are much less risky and offer much more flexible holding periods.


2. Reduce the leverage: The vast majority of problems in market downturns are the result of leverage. Investors who have purchased investments in cash can usually afford to wait out downturns in any market. Many borrowers don’t have this luxury. In down markets, cash rules and is typically able to find great asset bargains.


3. Help plan for due diligence: Help coach your clients through conducting a formal due diligence process. Sit down with them before you look at properties or opportunities and decide under what scenarios and terms an investment is a good fit. It’s easier to be rational before you are actually looking at deals that require down payments or signed contracts. Then take them shopping for the opportunity that fits their chosen profile.


4. Practice what you preach: If you can’t have certainty, it certainly helps to know that other intelligent people are also investing in the same thing. Some refer to this as the lemming factor. One could also refer to it as the respect factor. I wouldn’t hesitate to put my money in with Warren Buffet’s on any transaction. It’s also hard to win the respect of your clients if you don’t buy what you sell.


5. Use testimonials and other investors: As an extension of #4, it is helpful for investors to connect with other people who are investing. This can not only aid in expanding their knowledge of the market, but also assure them that they’re not the only one buying right now.

Show Me The Data

On Friday I had an interesting phone conversation with Tim Miner of Investment Riches. He was talking to me about his changing business model and shared an interesting statistic. Two years ago, when he was in the beginning stages of his website launch, more than 70% of his surveyed readers felt confident that they understood their local market. In the most recent survey, less than 15% still felt confident.

This is not surprising if you consider that investors tend to become overconfident in their own skills when the market is good and overly insecure when the market is bad. This is similar to the change in investors' perceptions of their understanding of the stock market after the dot-com bubble.

What it means is that there is opportunity for investment providers that can help their clients feel comfortable with a market or investment. Consumer confidence is at a 16 year low because people don’t know what to expect. Uncertainty begets fear.

While you can’t give your clients full certainty in terms of a guarantee without the likelihood of violating investment regulations, you can provide them with the information to help them understand the market, the risks and the changing investment climate.

The good news, for anyone in the industry, is that there isn’t one clear investment that investors feel certainty about right now. That wasn’t the case nine years ago when investors were certain about the stock market. It also wasn’t true three years ago when investors were certain about the real estate market. With inflation continuing to spike the prices of food, transportation and commodities, investors are losing purchasing power by doing nothing. Historically hard assets retain their value much better than fiat currency.

Jerry Maguire may say, “show me the money,” but uncertain markets say, “show me the data.”