Archive for March, 2010
Tuesday, March 30th, 2010
An important note:
Over the past 18 months, the quarterly templates for a client letter have ranked among the most popular features on this site.
Research with investors has identified the five elements of an effective client letter. It has to be:
1. balanced in outlook
3. short enough for clients to get through comfortably but long enough to be substantial
4. supported by facts
5. indicative of the advisors voice and personality
On this last point, if you like the basic structure of the letter, you MUST take the time to customize it to your own philosophy and outlook — I can’t emphasize this strongly enough.
April 12, 2010
“I have no idea what the stock market will do next month or six months from now. I do know that, over a period of time, the American economy will do very well and investors who own a piece of it will do well.”
Warren Buffet in an interview on CNBC on Friday, October 10, 2008
After the market roller coaster of 2008 and 2009, the first quarter of 2010 has been blessedly uneventful by comparison — the markets ended the first quarter about where they started the year, although up almost 60% from their lows of a year ago.
That said, there is still a cloud of uncertainty that is making many investors nervous.
Causes for concern … and for optimism
Even with the stabilization of the global economy, there’s no shortage of short term causes of concern:
… continued questions on the direction and timing of the economic recovery in the United States and Europe
… US housing prices that are staying stubbornly low and unemployment levels in North America and Europe that are stubbornly high.
… and in late March the deputy director of the International Monetary Fund made headlines as he talked about the need for advanced economies to cut spending in order to reduce deficits.
Here’s a New York Times article about the IMF’s views: http://www.nytimes.com/2010/03/22/business/global/22imf.html?scp=1&sq=lipsky%20imf&st=cse
The good news is that there are offsetting positives, even if the media headlines that feature them aren’t quite as prominent:
… on Monday March 22, the Wall Street Journal ran a story about dividend hikes as a result of rising profits by US companies. The article also mentioned that cash on hand on US corporate balance sheets was at the highest level since 2007.
… on the same day the Financial Times ran a similar story about dividend increases in Europe
… and there’s growing attention to the impact that Germany’s emphasis on manufacturing productivity had in sheltering it from the worst of the economic downturn — and questions about whether this might be a model for other countries. In March the Economist ran a 14 page feature on how Germany positioned itself for success.
Forecasting the future
Whether you choose to focus on the positives or the negatives, there’s broad agreement that the steps taken by governments stabilized the financial crisis that we were facing a year ago — and there is almost no talk today of a global depression.
So the issue is not whether the economy will recover, but when and at what rate –and whether there might be another stumble along the way.
If you look for investing advice in the newspaper or on television, the discussion tends to revolve around what stocks will do well in the immediate period ahead … this week, this month, this quarter.
We refuse to participate in that speculation — when it comes to short-term predictions, whether about the economy or the stock market, there’s one thing we can say with virtual certainty: Most of them will be wrong. Quite simply, no one has a consistent track record of successfully forecasting short term movements in the economy and markets.
Which is why in uncertain times such as today, one of the people I look to for guidance is Warren Buffett.
Advice from Warren Buffett
In an investment industry poll a couple of years ago, Warren Buffett was voted the greatest investor of all time; among the runners up were Peter Lynch, John Templeton and George Soros.
Buffett’s returns are a testimony to the power of compounding. From 1965 to the end of 2009, the growth in book value of his investments averaged 20% annually. As a result, $10,000 invested in 1965 would currently be worth a remarkable $40 million. By contrast, that same $10,000 invested in the US stock market as a whole, returning just over 9% during this period, would be worth $540,000.
In one of his annual letters to shareholders, Warren Buffett wrote that it only takes two things to invest successfully — having a sound plan and sticking to it. He went on to say that of these two, it’s the “sticking to it” part that investors struggle with the most. The quote at the top of the letter, made at the height of the financial crisis, speaks to Buffett’s discipline on this issue.
I try to apply that approach as well — putting a plan in place for each client that will meet their long term needs and modifying it as circumstances warrant, without walking away from the plan itself.
Boom times such as we saw in the late 90’s and scary conditions such as we’ve seen in the past two years can make that difficult — but those conditions can also represent opportunity. Indeed, in his most recent letter to shareholders Buffett wrote that “a climate of fear is an investor’s best friend.”
Five core principles that shape our approach
On balance, I share Warren Buffett’s mid term positive outlook, not least because many of the positives that drove market optimism two years ago are still in place, among these the continued emergence of a global middle class in developing countries like Brazil, China, India and Turkey. This educated middle class will fuel global growth that will make us all better off.
In the meantime, here are five fundamental principles that we look for in money managers and that drive the portfolios that we believe will serve clients well in the period ahead.
1. Concentrate on quality
The record bounce in stock prices over the past year was led by companies with the weakest credit ratings. Some have referred to last year as a “junk rally”, with the lowest quality companies doing the best. That’s unlikely to continue– that’s why I’m focusing my portfolios on only the highest quality companies, those best able to withstand the inevitable ups and downs in the economy.
2. Look to dividends
Historically, dividends made up 40% of the total returns of investing in stocks and have also helped provide stability through market turbulence. Two years ago, quality companies paying good dividends were hard to find — one piece of good news is that today it’s possible to build a portfolio of good quality companies paying dividends of 3% and above.
3. Focus on valuations
Having a strong price discipline on buying and selling stocks is paramount to success — history shows that the key to a successful investment is ensuring that the purchase price is a fair one. Investors who bought market leaders Cisco Systems, Intel and Microsoft ten years ago are still down down 40% to 70%, not because these aren’t great companies but because the price paid was too high.
4. Build in a buffer
Given that we have to expect continued volatility, we identify cash flow needs for the next three years for every client and ensure these are set aside in safe investments. That buffer protects clients from short term volatility and reduces stress along the way.
5. Stick to your plan
In the face of economic and market uncertainty, another key to success is having a diversified plan appropriate to your risk tolerance — and then sticking to it. It can be hard to ignore the short-term distractions, but ultimately that’s the only way to achieve your long term goals with a manageable amount of stress along the way.
In closing, let me express my thanks for the continued opportunity to work together. Should you ever have any questions or if there’s anything you’d like to talk about, my team and I are always pleased to take your call.
Name of advisor
P.S. If you’re interested, here’s a link to Warren Buffett’s 2010 letter to investors: http://www.berkshirehathaway.com/letters/2009ltr.pdf
Tags: American Economy, Climate Of Fear, Cnbc, Compendium, Deputy Director, Economic Recovery, First Quarter, Five Elements, Global Economy, International Monetary Fund, Lows, Optimism, Period Of Time, Roller Coaster, Six Months, Stock Market, Target, Unemployment Levels, Warren Buffet, Warren Buffett
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Tuesday, March 30th, 2010
Even with the market bounceback in 2009, many clients are still anxious, often stemming from negative media coverage of prospects for the economy and markets.
If you run into this, here are recent articles that might help calm nervous clients.
Emerging markets soar past their doubters
New York Times — Tuesday December 29
Jeremy Siegel on the Undervaluation in US equities
Advisor Perspectives — Tuesday December 29
The best is yet to come — the full benefits of technology are on their way
Wall Street Journal — Monday, December 28
The case for optimism on the economy
Wall Street Journal — Tuesday December 15
Tags: Advertisement, Amp, Benefits Of Technology, Bounceback, December 28, December 29, Economy, Emc, Emerging Markets, Jeremy Siegel, Negative Media Coverage, New York Times, Nytimes, Optimism, Perspectives, Prospects, Recent Articles, Soar, Wall Street, Wall Street Journal, Wsj
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Tuesday, March 30th, 2010
Recently, I came across an article that outlined the critical role of technology in Barack Obama’s remarkable presidential campaign.Among the key contributors to his success was the unprecedented $500 million his campaign raised online. The article discussed some of the innovative tactics that were used — one of which has direct relevance to financial advisors looking to attract new clients.Rather than asking for donations online, the Obama campaign’s online advertising had the single minded objective of getting people to sign up for their email list, agreeing to receive more information. The reason for this was quite simple — obtaining an email address and the owner’s agreement to receive future communication about the campaign was considered vastly more valuable than a single donation.
That’s true when it comes to raising money for a political campaign — and it’s also true when it comes to communicating with prospective clients.
When advisors talked to prospective clients in the past, it was normally with the view of doing immediate business — whether that was getting an order over the phone or obtaining an appointment to talk about the prospect’s circumstances and portfolio.
During the mid 90s, some advisors changed direction and focused on getting prospects out to seminars featuring media celebrities such as Brian Costello, Jerry White, Garth Turner and Gordon Pape. This worked well for a period of time, until saturation kicked in and it became harder to get truly qualified prospects out (in some cases replaced by a growing number of “seminar junkies”.)
These seminars worked because of the credibility of the speakers, due to the value that was promised in the ads promoting them and because showing up at a seminar was seen as less threatening than agreeing to meet directly with an advisor. For advisors who sponsored them, seminars were really an intermediate step between an initial conversation with a prospect and securing a meeting.
Even though mass seminars no longer work, the principle is still relevant. As we find ourselves dealing with increasingly skeptical investors, advisors need to reconsider how they approach prospects.
The ultimate objective hasn’t changed — it’s to secure a face to face meeting with a qualified and interested prospect. But advisors need to fundamentally rethink how to make that meeting happen. More and more, you will need to cultivate and nurture prospects by introducing more patience and upfront value to the communication with investors you hope to work with.
To read more about the background to this shift, go to http://www.strategicimperatives.ca/blog/?p=150
Note that if you obtain an introduction from a satisfied client or you have built a strong reputation as the go-to resource within a defined target community, the old rules might still apply and you can go for a meeting on the first contact. And of course if someone you talk to has already made a decision to move accounts or has an imminent need, you’re going to try to meet as soon as possible.
With those exceptions, however, going forward in many cases advisors will need to introduce a distinct three stage process to build upfront credibility with prospects, replacing the direct request for a meeting on the first conversation.
Picking up on the Obama campaign’s success, the first step is to secure a prospect’s permission to communicate with them — agreeing to receive information you’re emailing clients or to be put on the invitation list for informal breakfast or lunch sessions you’re holding for clients.
Next, you need to ensure you’re sending material that truly provides value and builds your credibility. Email has fundamentally altered our ability to provide existing and prospective clients with useful and timely information — the fact that we can email links to articles from credible newspapers and magazines has had a particularly big impact.
You can read more about building an email campaign to clients at http://www.strategicimperatives.ca/blog/?p=156
The final step is to approach prospects you’ve been cultivating about arranging a meeting. In some cases, you might reduce the commitment threshold by inviting prospects to a luncheon session for some of your clients before going for a direct meeting.
To read more about adding a prospecting component to client lunches, read http://www.strategicimperatives.ca/blog/?p=164
One of the things that has caused once successful companies such as the U.S. automakers to fail is attachment to the way they did things in the past, even when those things have stopped working.
That’s also true of advisors — just because something worked in the past doesn’t mean it’s going to work going forward. A key to ongoing success for all of us is the willingness to adapt to new realities in the marketplace and to embrace new approaches — and to take away new ideas from a variety of sources, even if that source is the U.S. President.
To read the full article about how technology helped Barack Obama become President,
For more information, please visit http://www.getkeepclients.com.
Tags: Barack Obama, Brian Costello, Credibility, Critical Role, Email List, Financial Advisors, Garth Turner, Gordon Pape, Initial Conversation, Intermediate Step, Junkies, Mid 90s, Period Of Time, Political Campaign, Presidential Campaign, Prospective Clients, Prospects, Raising Money, Relevance, Saturation
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Tuesday, March 30th, 2010
This article is a guest post written by David Weinberger, Senior Researcher at Harvard’s Berkman Center for Internet & Society, and the author of Everything Is Miscellaneous (www.everythingismiscellaneous.com) and a co-author The Cluetrain Manifesto (www.cluetrain.com).
REPRINTED WITH PERMISSION
Transparency is the New Objectivity
By David Weinberger
July 19, 2009
A friend asked me to post an explanation of what I meant when I said at PDF09 that “transparency is the new objectivity.” First, I apologize for the cliché of “x is the new y.” Second, what I meant is that transparency is now fulfilling some of objectivity’s old role in the ecology of knowledge.
Outside of the realm of science, objectivity is discredited these days as anything but an aspiration, and even that aspiration is looking pretty sketchy. The problem with objectivity is that it tries to show what the world looks like from no particular point of view, which is like wondering what something looks like in the dark. Nevertheless, objectivity — even as an unattainable goal — served an important role in how we came to trust information, and in the economics of newspapers in the modern age.
You can see this in newspapers’ early push-back against blogging. We were told that bloggers have agendas, whereas journalists give us objective information. Of course, if you don’t think objectivity is possible, then you think that the claim of objectivity is actually hiding the biases that inevitably are there. That’s what I meant when, during a bloggers press conference at the 2004 Democratic National Convention, I asked Pulitzer-prize winning journalist Walter Mears whom he was supporting for president. He replied (paraphrasing!), “If I tell you, how can you trust what I write?,” to which I replied that if he doesn’t tell us, how can we trust what he blogs?
So, that’s one sense in which transparency is the new objectivity. What we used to believe because we thought the author was objective we now believe because we can see through the author’s writings to the sources and values that brought her to that position. Transparency gives the reader information by which she can undo some of the unintended effects of the ever-present biases. Transparency brings us to reliability the way objectivity used to.
This change is, well, epochal.
Objectivity used be presented as a stopping point for belief: If the source is objective and well-informed, you have sufficient reason to believe. The objectivity of the reporter is a stopping point for reader’s inquiry. That was part of high-end newspapers’ claimed value: You can’t believe what you read in a slanted tabloid, but our news is objective, so your inquiry can come to rest here. Credentialing systems had the same basic rhythm: You can stop your quest once you come to a credentialed authority who says, “I got this. You can believe it.” End of story.
We thought that that was how knowledge works, but it turns out that it’s really just how paper works. Transparency prospers in a linked medium, for you can literally see the connections between the final draft’s claims and the ideas that informed it. Paper, on the other hand, sucks at links. You can look up the footnote, but that’s an expensive, time-consuming activity more likely to result in failure than success. So, during the Age of Paper, we got used to the idea that authority comes in the form of a stop sign: You’ve reached a source whose reliability requires no further inquiry.
In the Age of Links, we still use credentials and rely on authorities. Those are indispensible ways of scaling knowledge, that is, letting us know more than any one of us could authenticate on our own. But, increasingly, credentials and authority work best for vouchsafing commoditized knowledge, the stuff that’s settled and not worth arguing about. At the edges of knowledge — in the analysis and contextualization that journalists nowadays tell us is their real value — we want, need, can have, and expect transparency. Transparency puts within the report itself a way for us to see what assumptions and values may have shaped it, and lets us see the arguments that the report resolved one way and not another. Transparency — the embedded ability to see through the published draft — often gives us more reason to believe a report than the claim of objectivity did.
In fact, transparency subsumes objectivity. Anyone who claims objectivity should be willing to back that assertion up by letting us look at sources, disagreements, and the personal assumptions and values supposedly bracketed out of the report.
Objectivity without transparency increasingly will look like arrogance. And then foolishness. Why should we trust what one person — with the best of intentions — insists is true when we instead could have a web of evidence, ideas, and argument?
In short: Objectivity is a trust mechanism you rely on when your medium can’t do links. Now our medium can.
David Weinberger’s Books:
Everything Is Miscellaneous: The Power of the New Digital Disorder
Tags: Agendas, Aspiration, Autho, Berkman Center, Biases, Blogging, Cluetrain Manifesto, Co Author, David Weinberger, Democratic National Convention, Harvard, Journalist, Journalists, New Objectivity, Point Of View, Pulitzer Prize, Realm Of Science, Researcher, Transparency, Unattainable Goal, Walter Mears
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Tuesday, March 30th, 2010
By Marc Lamontagne, CFP, R.F.P, FMA
Making Beautiful Music Together—why advisors should form ensembles
There are three basic business models in the financial planning industry: sole practitioner, silo, and ensemble. The trend to forming ensembles or group practices is well established in the U.S. among independent advisors, but has yet to emerge as a dominant model in Canada.
The problem is that financial practitioners, by our very nature, are fiercely independent. So the thought of working not only in a shared ownership model but, more importantly, a shared decision-making model can turn off many advisors, even when they see the obvious benefits to being an ensemble player.
That being said, the advantages can far outweigh the negatives of giving up some control in the day-to-day management of your practice.
Show me the money
The most compelling benefit of a group practice with other players is financial. Although economies of scale are also obvious when it comes to silo offices, ensembles can go much further in reducing overhead cost per advisor. Think of it this way—there is a cost to producing a self-employed or corporate tax return, but it is never ten times higher for an office of ten advisors than it is for one.
Providing Better Service
You will also have a financial and professional interest in your colleagues’ books and vice versa. So it is to your benefit to make sure everyone’s clients are well served during holidays, emergencies, and the busiest times of the year. This flexibility can be worth a lot in reducing stress and improving service.
This shared revenue commitment will often be reinforced by a year-end bonus or shareholder dividend.
Time is money
As a sole practitioner, the buck stops with you. Whether settling HR issues or designing portfolios, you can’t avoid the work that takes you away from revenue generating activities. When working in a silo, where just expenses are shared, individual advisors are still solely responsible for all aspects of managing their practice. By agreeing to divide all the work among several trusted advisors, you can share the non-revenue producing activity such new product research, organizing client appreciation events, or writing a newsletter.
Ensembles also allow advisors to specialize in different areas of financial planning such as tax or insurance. This creates a large pool of knowledge that can be quickly accessed to better service a varied client base.
Giving up some control
To reap the full benefit of the model, partners in an ensemble will often agree to standardize procedures, client deliverables, and portfolios. This can seem alien to someone who is used to running every aspect of their own practice, but a well-structured management committee will still allow all players to have a say about how the office is run.
Ask yourself this: if you were seriously disabled, forced to retire, or died tomorrow, how would you retain the value of your practice? By combining your book with other advisors, and sharing practice management procedures, you can ensure continuity in case of the unthinkable. You can also assure prospective clients that, if you were to leave (for whatever reason), another advisor would pick up their file and run their meetings and portfolio in a similar matter.
When the time comes to sell your share of the business, you will have a ready pool of existing players and associates eager to buy in. The alternative, in case of a larger practice, is there will also be “financial buyers” who will want to buy out a well-run practice lock, stock, and barrel.
A well-crafted shareholder or partner agreement will avoid any problems such as those who want to coast while other players are still building their practice. It can also spell out clear transition plans such as buyout formulas.
Adding new players can be a challenge, but the best argument is that even though everyone ends up owning a smaller piece, it’s a bigger pie.
In these challenging times, belonging to a team of professionals with a shared sense of purpose in a collegial atmosphere can certainly provide the support most advisors wish they had.
Marc Lamontagne, CFP, R.F.P., FMA is a fee-based financial planner with Ryan Lamontagne Inc., fee-model practice management trainer, and author of To Fee or Not to Fee II — How to design a fee financial advisory practice. www.tofeeornottofee.com
Tags: Beautiful Music, Business Models, Day Management, Dominant Model, Economies Of Scale, Ensembles, Financial Practitioners, Fma, Group Practice, Group Practices, Hr Issues, Improving Service, Independent Advisors, Overhead Cost, Ownership Model, Professional Interest, Reducing Stress, Silo, Sole Practitioner, Time Is Money, Year End Bonus
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Wednesday, March 24th, 2010
As part of their ongoing conversations with clients, many advisors ask for feedback on how happy clients are.
That’s a good thing – as long as you ask in a way that allows clients to answer honestly.
In asking for feedback, remember that most clients are uncomfortable with conflict and with discussing difficult issues.
So if you say to a client “How do you feel about the job I’ve done for you in the past year”, the answer you’re likely to get is … “It’s fine”, regardless of how clients really feel.
And if you say “Are you happy with the experience you’ve had working with me and my team?”, you’re likely to hear .. “Sure”, even if your client isn’t that happy.
Answers like “Fine” and “Sure” are too vague to be useful.
So how then do you get answers that reflect how clients really feel.
A question clients feel comfortable with
The key is asking questions in a way that clients feel comfortable answering honestly.
One way is to ask clients to rate their satisfaction on a scale from 1 to 10.
For example, you could say “How would you rate the job I’ve done communicating with you from 1 to 10, with 1 being low and 10 being high.”
Or “how do you feel about the overall performance of your portfolio over the past year from 1 to 10?”
Few clients will give you a 1, 2 or 3 – if they’re not that happy , they’ll give you a 5 or perhaps a 6, thinking that’s a passing grade.
Meanwhile, you know that anything less than an 8 means clients aren’t that happy.
So if you get a score of 7 on communication, let’s say, that lets you ask the follow up question:
“What do you like about the communication you receive? And what could I do to improve the way I communicate with you?”
Or if a client rates their portfolio performance at a 5, you’re able to have an open conversation about how they’ve done.
Remember this, though – if you’re not prepared to talk about how clients feel and what you can do differently going forward, don’t ask the question.
The single best question to ask clients
For high value clients whose satisfaction you’re really concerned about , here’s a question you could consider asking:
“What one thing could I do to improve your experience working with me and my team?”
The key to getting clients engaged is that you’re asking them to identify just one thing. And once you’ve talked about this, if appropriate you could go on to say “And what else could we do to improve your experience working with us?”
If you want to give clients time to think about this, you could bring this up when you’re setting the meeting up – telling your client that you’d like to address this question when you meet.
Again, remember that when you’re asking this question, you’re making a commitment to deal with the answer you get … so you don’t want to ask this question lightly. On the other hand, for high value clients, this kind of conversation can help identify small issues before they become big problems and potentially cost you an important client.
Tags: Ask Question, Client Rates, Client Satisfaction, Communication, Conflict, Conversations With Clients, Feedback, Job, Open Conversation, Passing Grade, Portfolio 5, Portfolio Performance, Score
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Tuesday, March 23rd, 2010
Friday, March 19th, 2010
Thursday, March 18th, 2010
A couple of weeks back, I got a call from an advisor who found himself way behind on contacting clients, felt overwhelmed at the prospect of tackling this and was paralyzed by procrastination as a result.
We all suffer from procrastination — the only difference is the magnitude of the problem.
For advisors looking to overcome procrastination, here’s the three-step solution I suggested to this advisor.Step One:
At the end of each day, identify two things you’ve been procrastinating about.
Each should be something that can be addressed in fifteen minutes or less — a prospect or client to call, email to write or admin problem to resolve.
If the issue can’t be dealt with in fifteen minutes, then carve out a fifteen minute slice to at least start.
Having identified the two issues, write them down on top of your to-do list, in your day-timer or on a piece of paper.
Then carve out 30 minutes in your calendar on the first free spot the next morning — ideally the very first thing in the morning. If you don’t have thirty minutes available, then you’ll need to come in early to get some other things done to free up the time to address this.
Resist the temptation to avoid tackling the two issues. Resolve to deal with them — if you haven’t tackled them by lunch time, then put off going for lunch until you’ve addressed them.
I got a call early this week from this advisor thanking me for my suggestion. He’d put my idea into practice — while he still had clients to call, using this approach he’d begun knocking overdue client calls off his to-do list (and in fact had increased the number of these calls to four a day). As a result, he feels much better coming into the office and his overall productivity and enthusiasm level is a lot higher.
Lots of us are feeling overwhelmed these days. If you can relate to this, consider using the two item a day, three step approach that worked for this advisor.
Tags: 30 Minutes, Address, Advertisement, Calendar Free, Day Timer, Fifteen Minutes, Logjam, Lunch Time, Magnitude, Next Morning, Piece Of Paper, Procrastination, Productivity, Step Approach, Step Solution, Suggestion, Target, Temptation
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