For advisors, discussing such issues with investors can be a dicey undertaking that can offend clients if not handled carefully. Yet, advisors need to look out for their clients’ best interests, so they have an obligation to tackle tough topics.

Timing is Everything

When preparing to address such issues, you should carefully consider the timing.

However, determining the timing can be tricky. On one hand, contacting a client specifically to discuss an issue can make an advisor appear to be focusing on problems that the client has created.

In a worst case scenario, the conversation can come across as trying to embarrass a client. By initiating a conversation specifically to bring up an issue, an advisor also risks starting the conversation when a client may not be in the right state of mind to deal with the problem. The client may simply be having a bad day and therefore be less receptive to discussing the matter. As an alternative, it may be best to wait for a scheduled portfolio review or other meeting to bring up a thorny issue.

That way, the issue doesn’t sound so bad that it warrants a specific phone call. The advantage of using a regular meeting, additionally, is that an advisor can use the event to assess if the client is in the right mood to discuss potentially upsetting matters.

At the same time, some issues cannot wait. For example, a client’s inappropriate exposure to highly risky investments may need to be addressed promptly to avoid a bruising from unkind markets.

In such a case, an advisor needs to weigh the merits of waiting for an opportune time with the need to address it promptly. When it’s time to bring up an issue, an advisor should emphasize that he or she values the client relationship or even friendship. It may be appropriate to begin the conversation by acknowledging that while the topic may be difficult to discuss, it can have a significantly negative impact if it goes unaddressed.

Advisors can then advise the client they have the option to do nothing if they are not ready to discuss it. For example, in the event of a client planning to marry, an advisor may want to ask if the client has considered entering into a prenuptial agreement. Allowing a client to not discuss the matter gives the client an out, which can make it easier to start the conversation and lessen the intensity of addressing a thorny matter.

Don't Judge or Even Appear to Judge

It’s also important to start conversations in a non-judgmental manner. In the event that a client may have purchased in inappropriate investment, an advisor can simply ask the client to discuss the role that the investment will play within the client’s portfolio, as opposed to initially stating that the investment is inappropriate.

The client may or may not have an explanation of the role of the investment. Either way, an advisor can follow up by discussing the risk/return characteristic of the investment and point out why the investment may not be consistent with the clients’ goals.

Discussing thorny issues can be tough, but advisors who do so skillfully will find that their client relationships strengthen over time as they help their client reach their financial goals.