Have you ever been on a cruise ship? If you haven’t, you may not be familiar with the term ‘lifeboat drill’. If you aren’t, let me give you a quick summation of this event. Before you ever leave port on your cruise, the captain of the ship makes everyone don their life preservers and make their way to the deck where they are shown how to properly use the lifeboats in the event your cruise ship sinks. Though the possibility of such an incident is highly unlikely (only 55 cruise ships have sunk since 1979 resulting in a grand total of 172 deaths), lifeboat drills are still conducted on every single cruise before it sails into the ocean.

So what’s this have to do with financial planning? I use the term ‘lifeboat drill’ to describe the precautionary measures you should take with your clients to prepare them for a dip in the market. Unlike the possibility of a cruise ship sinking (very low), the possibility of the market dropping is not only likely, but it’s darn near inevitable. History has shown that we see a big dip in the market about every five years and that the dip lasts approximately 18 months. That means that if you have a client who is 60 years old, they can expect to see five or more dips (or what I refer to as market corrections) in their lifetimes. With that high of a probability, it just makes sense to prepare them ahead of time.

What is a Lifeboat Drill in Financial Planning?

When you conduct a lifeboat drill with your financial planning clients, you are basically building a precautionary tale into your services. How you do this really depends on the type of business you have and the relationship you’ve built with your clients. As an advice-based planner, you can work the lifeboat drill into regular meetings or you can call your clients in for a meeting to exclusively discuss the potential upcoming market corrections and what you can do to prepare.

For the most part, you won’t need to make alterations to your client’s portfolio as part of the lifeboat drill. Instead, you’ll advise them to ride out the market correction as it will eventually even out. However, the last thing you want is for their portfolio to take a dive and for it to take them by surprise. This is the way clients make rash decisions—especially if they are prone to watching the financial news and reacting emotionally.

Why They Are Important for Your Business  

Lifeboat drills are just another way to serve your clients and help them avoid the spur-of-the-moment decisions that can destroy their portfolios. When you educate your clients on issues such as this, you truly elevate yourself to that of a partner in their success and not just a salesman trying to get them to buy one more product. Here are three ways lifeboat drills help take your business to the next level.

They build your relationship with your client  As a fiduciary, one of your goals should always be to mentor your clients and help them make smart decisions. Once your clients see that you have given them rational advice, your relationship will deepen and their amount of trust in your will get that much stronger.

They proactively address emotional investing  When you stop focusing on the numbers and start focusing on human behavior, you increase your emotional intelligence and are able to see ahead of time how your clients may make ill-advised decisions. Most of your clients make decisions about their portfolio based on emotions which cause their behaviors. If you can get to your clients before those emotions occur, you can help guide their behaviors much more effectively.

They increase your value When you help your clients see why they may react emotionally to a market correction and how to proactively prevent it, you are effectively coaching them in emotional intelligence. As a coach and partner, you become a valued part of your client’s life and your relationship flourishes.

Is it time to conduct a lifeboat drill with your clients? If history is any indication, we will soon see a market correction that, if caught unaware, could prompt rash emotional decisions in your clients. Take the time now to speak to them about what to expect and help them brave the rough waters in a way that serves their best interests.

Training: Steal My Formula On..

How I grew my advisory to $140 million in assets under management, working 15 hours a week & with one employee

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit