After nearly three decades of benign capital-markets behavior, the last five years have been much more challenging for investors and for advisors. Our industry is still sorting out the implications of the assumptions we made about the markets prior to 2007: “There was no intellectual justification for assuming that the market movements from 1980 to 2005 were the best predictor of market movements after 2005.”

Unfortunately, almost from top to bottom, our industry built a set of optimistic assumptions and then based important decisions on them.

Investors are living through a crisis of confidence, which has led to a concurrent “crisis of credibility” for advisors. Since 2007, clients with “properly diversified portfolios” have experienced losses of 20%, 30% and even 40%. Iconic firms were forced to merge impulsively, others have ceased to exist, and all of them continue to struggle with declining margins, downsizing and maintaining profitability. While most financial advisors have maintained their important relationships, very few have escaped at least some concern from investors about the viability and value of their services.

Building (and rebuilding) credibility with clients and with potential referral advocates must be an ongoing commitment. As a coach to top advisors in our industry, I suggest that prudent FAs allocate significant time each month to proactively reaching out to existing clients and to “centers of influence” with a thoughtful message about the markets—where we’ve been, what’s currently going on and what is likely to happen next. I’m suggesting that your retention and new business acquisition goals be supported by a professional and well-articulated Capital Markets Perspective (CMP). 

Two Key Ingredients that Lead to Credibility

Your credibility will be supported by two ingredients of good communication that should be built into your message. First, it is important to provide adequate detail and high-quality information in your comments. Doing so allows you to demonstrate the depth and breadth of your knowledge. This is the essential foundation of professional credibility.

Second, it is vital that your client or the potential referral advocate gains insight from your message. An effective CMP creates a new or exciting understanding of the mechanisms of the markets. This knowledge, based on meaningful details, enhances the perception of credibility from investors and centers of influence: when you demonstrate that you know how the markets work and how to take advantage of opportunities within those markets, you are credible to those who are in a position to do business with you.

The Role of Illustrations

A common mistake made by many Financial Advisors is to use only verbal descriptions to present information. Of course, when you are working on the telephone, words are your only tool; however, the human mind is designed to receive and process information visually much more effectively than any other sense. When presenting complicated information about the mechanisms of the markets, it is more powerful to include graphics that illustrate market dynamics rather than using words alone to get the message across. The old saying “A picture is worth 1,000 words” is valuable guidance when presenting your ideas. Take the time to find 10 to 12 graphics that help you tell your story; there are plenty of resources developed every quarter from your asset management partners and your home office from which to choose.

The Structure of the Conversation: Seven Questions

In addition to the quality of information presented in your CMP, the structure of your message helps your audience achieve a deeper understanding. When you answer the following seven questions in the order presented and illustrate your answers with detailed graphics, your CMP will provide investors and other professionals with an experience of your professional credibility:

1. What is the current situation?

Start with some reflections on the current situation in the capital markets by using whatever key benchmarks you feel are the best indicators of what investors are currently experiencing. There are always one or two areas of the markets that deserve special attention because of developments or disruptions. Illustrate your comments with three or four graphics that visually depict how the market has been trending. This begins the conversation with reaching an agreement about what is true in the current markets. You want to start with the other person saying, “Yes, I’ve seen the same things recently!”

2. How did we get here?

Next, take a close look at the mechanisms that created the current situation. This is especially important when markets have trended downward precipitously, as investors and their other trusted advisors may see investment losses as an indicator of some kind of failure of advice. By pointing to the mechanisms that created the current problem, you demonstrate your knowledge of the mechanisms that are involved. This builds a rationalization of the hidden dynamics that investors are often unaware exist in the markets. It also provides a platform from which you can explain why some of those dynamics were unforeseen and why losses were realized. It is especially important to illustrate the cause/effect mechanisms you are explaining in this part of your presentation.

3. Does history offer any perspective on the current situation?

The third question allows you to zoom out and take a look at the big picture. After looking at the past 24 to 36 months, you can reference market dynamics from the past seven or eight decades. This is an important step in demonstrating the scope of your professional knowledge and a way to use history to put the current situation into perspective. Again, providing two or three graphics showing historical trends or specific historical events will help clarify your message.

4. Have there been any attempts to repair things?

Another important step, especially when markets trend downward, is to point to those efforts and interventions that have been used to repair the problems in the markets. Repairs can be intentional decisions about monetary policy or naturally occurring dynamics in the market cycle. This section of your presentation could be titled “Reasons for Hope” and allows you to point to a wide variety of mechanisms that your investment process will be taking advantage of in the future.

Alternatively, during a robust, up-trending market of longer duration, this section of your CMP should be titled “Is There Reason for Concern?” Here you can reflect on those mechanisms within the markets that may lead to the next departure from the mean that will likely be followed by a correction. Warren Buffett’s famous observation will serve you and your clients well here: “Be fearful when others are greedy, and be greedy when others are fearful.”

Your CMP can be an important tool for teaching investors the timeless principles of investing.

5. Based on this analysis, what is likely to happen?

The next step in credibility building is to take the insights from recent and more distant history, along with insights into how the problems in the markets are being addressed, and point to how those mechanisms are likely to unfold in the future. This is not to say you should “call the bottom” or make unsupportable claims about the future; however, you should observe how the mechanisms of the market are likely to behave in the near- and mid-term future. If you’ve been effective in illustrating the historical precedents that inform your investment decisions, you’ll be able to point to several trends that you believe you’ll be able to capitalize on going forward.

6. With all this in mind, what recommendations are we making?

It is important to combine your insights into market dynamics with specific and actionable investment ideas. To the extent possible, each time you present your CMP, you should include two or three ideas or strategies that you’re recommending to investors. For clients, this helps them see how you translate market insights into investment strategies. It also helps professionals and potential referral advocates connect how your knowledge of market dynamics will be used to help their clients achieve their investment objectives. Connect each investment idea to the market analysis provided in earlier steps so that your audience can achieve the “Aha!” experience of insight and understanding.

7. What are the short-term consequences and long-term benefits of these recommendations?

The final step in the structure provides an opportunity to moderate short-term expectations (and to anticipate some additional, near-term volatility) and points to the longer-term positive outcomes that can be anticipated. It is important for both current clients and prospective referral advocates to understand the limits of what can be expected from a Financial Advisor. While you cannot predict the day-to-day fluctuations of the markets nor protect every client from the risks implicit in any investment, you can use your professional knowledge to navigate the markets successfully over time. This step helps you manage expectations and allows another opportunity to demonstrate the quality of your professional credibility.

Delivering the CMP to Clients and Referral Advocates

There are many ways to deliver your point of view to the people that matter most to your business. The CMP can be presented in one-on-one meetings or in group settings. It is equally useful in building and rebuilding credibility with your current clients. It makes a great first impression with those CPAs and attorneys you want to collaborate with, and it can be part of a “lunch and learn” program for accounting firms and law firms with whom you want to do business. It should certainly be an important part of every formal client review you do through the year.

Finding the time to think through your professional point of view will be challenging. This is one of those tasks that most advisors will want to put off and simply hope for the best in their relationships. For those who do take the time and invest the effort to articulate their professional point of view, its impact on relationships and the benefits it will produce over time will be well worth the effort.

Ken Haman is the Managing Director at the AllianceBernstein Advisor Institute, visit

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