Archive for September, 2010
Tuesday, September 28th, 2010
A recent conversation drove home how easy it is to cross wires when communicating with existing and prospective clients.
I was talking to a successful lawyer who I’ve known for many years. He has been managing his own money but markets over the past years persuaded him he should look at the possibility of working with a financial advisor.
He mentioned that he had sat down with one advisor (as it happens an advisor I know quite well) for ninety minutes, had enjoyed their conversation and been leaning to the possibility of working with him.
His only concern was this advisor’s strong emphasis on junior resources (“Moose Pasture Mines” was how my friend described these stocks) that he saw as being too risky for someone in his sixties. As a result, he had decided not to move forward with this advisor and had cancelled a follow up meeting that had been set up.
Knowing the advisor in question as I do, this just didn’t sound right. I called the advisor, mentioned I knew the prospective client he’d talked to — and asked for his take on the conversation.
It turns out, that in the last five minutes of a ninety minute conversation, he’d mentioned that he’d successfully used flow throughs as a vehicle to help clients save taxes .… And yes, he had told my friend that these flow throughs did consist of junior resource stocks.
I did ultimately get this advisor and my friend back together for a coffee to clear the air on this — and we identified the source of the miscommunication. The very last thing they’d talked about when they met was the flow through share opportunity — and by leaving this to the end of the meeting, this was what the prospective client walked away remembering.
There are two important lessons for advisors from this.
First, in structuring agendas for meetings with existing and prospective clients, be sure that you end on the right note — often advisors will leave the least important item to the end of the agenda.
And second, you need to be sure to summarize what you’ve covered at the end of every meeting (and ideally recap this in a short email immediately afterwards.). You can’t assume that people you meet with will remember all the things you covered — you need to ensure that you take two minutes at the conclusion to summarize the key points you talked about.
You can never eliminate the chances of miscommunication — but you can reduce them.
One way to do that is to be sure you learn from the mistakes this advisor made — and end every meeting on a strong note and take the time to summarize what you covered.
Tags: Agenda, Agendas, Coffee, Financial Advisor, Five Minutes, Junior Resource, Lawyer, Minute Conversation, Miscommunication, Money, Pasture, Prospective Client, Prospective Clients, Resource Stocks, Sixties
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Tuesday, September 28th, 2010
In early August, I got a call from an investor in Toronto in response to my regular column in the Globe and Mail, asking if I could recommend an advisor.
In talking about her situation, this woman explained that she and her husband were both in their mid thirties with one child, owned a house in mid town Toronto on which they were aggressively paying down the mortgage, both had good jobs and had saved about $500,000 — so not huge clients but ones that would be a fit for many advisors.
After spending a bit of time trying to understand exactly what she was looking for, I suggested that I identify three advisors that might be a fit for her needs, that she could talk to and then make a decision on whether one of those three was a fit for her.
Three advisors who took a pass
I emailed six advisors in Toronto who I thought might be a fit. At some point, all had approached me about the possibility of getting introductions to new clients.
In each case, I provided some background on this client and asked if they’d like to have their names put forward — understanding that they would be one of three advisors who I’d be recommending.
In one case, I got an out of office email response that this advisor was away until September 7 and that on urgent matters I should contact his assistant. (Remember this was early August.)
In a second case, the advisor got back the same day, thanking me but saying that her minimum asset level for new clients is $1 million — but that she’d be happy to be considered in the future for prospective clients who had at least $1 million.
A couple of days later I got an email back from a third advisor saying that if I wanted to put his name forward and recommend him, that he’d be happy to talk to this client but that he had no interest in being one of three advisors and having to participate in a “beauty contest”, as he put it.
Putting your best foot forward
I asked each of the three remaining advisors for a one page overview with some basic background, summarizing their approach and the benefits to clients of working with them, with the view to forwarding this to the prospective client so that she and her husband could have some background on the advisors before contacting them.
I got virtually the identical response from all three advisors.
In every case, the answer was that they didn’t have a one page summary that could be forwarded to a potential client — instead they sent me links to various documents.
One advisor included an article she’d written, another included an article that had been written on him. A couple included links to client testimonials and an overview of their team. Two sent links to a summary of their process. And one included an overview of what clients could expect.
I sent each email to the prospective client exactly as it was sent to me — I simply forwarded on the information that I was provided with.
Communicating your case to prospects
I have four takeaways from this experience.
First, none of the three advisors seemed to have an information package that could be readily emailed to prospective clients. So my first conclusion is that if acquiring new clients is one of your business objectives, you need to have an effective information package assembled and close at hand.
Second, as part of that package, advisors need to have a one page cover sheet that summarizes background on them and their firm and that also provides a summary of the other documents that are included in the package.
Third, advisors need to ensure that their information package looks professional.
That obviously means no typos, but beyond that all of the elements of the package should have a consistent graphic identity. When I looked at the background information that these advisors sent me, in two out of three cases there was huge divergence in the look of the different elements that they had forwarded — different type styles, sizes and colours.
Finally and most important, advisors need to make the contents of this information package as concrete, specific and differentiating as possible.
When thinking about the reason to work with you, prospective clients won’t be impressed by generalities — rather you need to provide a tangible, fact based rationale for why someone should give you their business.
Tags: 1 Million, Beauty Contest, Best Foot, Couple Of Days, Early August, Email, Globe And Mail, Introductions, Investor, Jobs, Mid Thirties, Mid Town, Mortgage, Names, Page Overview, Prospective Clients, Toronto, Urgent Matters
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Saturday, September 25th, 2010
Friday, September 24th, 2010
Sunday, September 19th, 2010
Recently, we’ve seen lots of media coverage about the number of investors who are rethinking the relationship with their advisor. Research studies indicate that somewhere in the vicinity of 10% of investors say they’re likely to switch advisors or firms in the next twelve month, up from 6% a year ago.
In early June, I wrote a column in the Globe and Mail titled “Taking the time to find an advisor may be your best investment”. While directed towards investors, it’s also important reading for advisors talking to clients thinking about a move — the article outlined four key points that investors considering a change in advisors should bear in mind. Don’t rush the process
Given its importance, choosing the right financial advisor is a decision that shouldn’t be rushed. Sometimes in the past, investors have selected the first advisor they spoke to or made a decision based on an advisor’s glitzy office and apparent success — and then regretted this decision afterwards.
When looking for an advisor, most investors begin by asking people they know for suggestions. And while a referral from someone they trust certainly increases the odds things will work out, just because an advisor is a good fit for a friend doesn’t mean they’ll be right for them.
Just as in any important decision such as buying a house or switching jobs, to increase the odds of getting this right, investors need to gather lots of information and dig deep before deciding.
Given the potential impact of this decision, it’s essential for investors to take their time. In the column, I suggested investors tell an advisor they’re talking to that they’d like to sit down for a couple of in depth discussions before deciding if they want to work together.
During these meetings, the first objective for investors and advisors is to gather facts that will allow them both to get a sense of whether this a good fit.
It helps if investors are clear on the information they’re looking for — based on recent conversations with investors and advisors, I’ve developed a list of 25 questions that investors can draw from, in nine different categories such as understanding your investment philosophy, the role of financial planning in your practice, the team that you have supporting you, how you’re compensated and what you’ve advised clients over the past twelve months.
Something for both investors and advisors to consider in this fact finding process is to write down a list of things you’re looking for beforehand. After an initial meeting, you can compare the answers you got to this list.
A full list of the questions investors can draw from in a conversation with a potential advisor can be found at the bottom of this article, or go to the bottom of the article at: http://www.theglobeandmail.com/globe-investor/investment-ideas/features/experts-podium/taking-time-to-find-an-adviser-may-be-your-best-investment/article1169384/
Getting a reading on chemistry
Once you’ve got a handle on basic facts, the second issue for investors and advisors alike is getting a reading on chemistry.
For investors, are they comfortable talking to you? Do you ask good questions? Do you really listen to their answers and appear truly interested in their situation? Do you talk in plain English and use terms that are easy to understand? Do they like you as a person and feel they could be absolutely open with you? Finally, do they get positive vibes and feel that they could be confident in the advice that you provide?
Understand that the decision to work together is a mutual one
It’s not just investors who are making judgements — advisors should also be getting a reading on investors and whether they’ll fit into their practice. A point I made in the column was that the best advisors can pick and choose and are discerning about who they work with.
In the column, I talked about a number of questions an advisor might be looking to answer:
Is the investor really serious about entering a relationship with an advisor they can trust and about sticking to their plan?
What’s their history of staying the course when we hit bumps in the market? Are you looking at panicked calls about going to cash every time the market drops a few hundred points?
How realistic is the investor about the level of risk required to achieve the returns they’re looking for? Do they have the emotional equilibrium to deal with market volatility? When things go wrong, is there a tendency to point fingers and look for someone to blame?
Do they have a history of switching advisors every time there’s a downturn? A trail of past advisors or history of complaints is a huge red flag
Finally, are they prepared to pay a fair price for the advice they receive — or will you be facing never ending battles on commission levels, with the cost of executing trades with discount brokers as the primary point of comparison?
I’ve had great feedback on this column from both investors and advisors. At some point in the next few days, consider setting a few minutes aside to review this list of questions — and think about how you’d answer if a prospective client put these to you.
If you’re interested in reading the full article, click here:
25 questions for potential advisors — This is the list of questions for investors on the Globe website
To investors selecting a new advisor
Below are 25 questions you could ask a financial advisor you’re considering working with, broken down into nine broad categories. These questions were developed based on in depth conversations with investors who have recently selected a new advisor and with financial advisors themselves.
This list may seem overwhelming initially but remember, it is unlikely that you will use them all — pick the ones that are the most relevant for you.
These questions should not be used as a laundry list to blast through — to get a good handle on whether you and an advisor will work well together, exploratory meetings have to consist of a conversation, not an interrogation. That said, some of these questions can be a starting point to learn more about an advisor you’re talking to.
It’s important to note that there are some tough questions on this list and some will require real thought by the advisor– seemingly simple questions may need complex answers. Rather than focusing on an advisor who provides quick and glib responses, look for someone who really thinks about your questions and gives considered responses.
- Tell me about yourself? How long have you been a financial advisor?
- What did you do before you became a financial advisor? What made you decide to pursue this as a career?
- What kind of qualifications do you have? Tell me more about those qualifications. What do you typically do to each year to stay current?
- Tell me about the firm you work with? What attracted you to this firm?
Fit and chemistry
- We all have preferences in the people we work with. What’s the most important thing you look for in a new client? Describe the kind of client you find you work with best?
- What’s the average asset level of your clients? How many client households do you work with — and where would my portfolio fit in?
- Tell me about the last couple of clients who left you and took their account elsewhere. Have you had any client complaints to your firm in the past couple of years?
- Do you typically complete financial plans for clients like me? What would be covered in this plan? What would the process be to develop this plan?
- I know that some advisors put their primary focus on getting the investment process right while some others also get into issues like insurance, tax planning, estate planning issues and retirement planning. Where do you fall on this spectrum?
Investment philosophy and your portfolio
- What’s your investment philosophy and process? In your experience, how is this different from other advisors?
- What kind of changes would you recommend in my current portfolio? Tell me more about about your reasoning for these changes. Which of my current holdings would you suggest we retain?
- I know that some financial advisors build portfolios of stocks and bonds for clients themselves, some delegate this to money managers and some do a combination of the two. Tell me about your approach to this.
- How do you go about building portfolios or choosing money managers? To what extent do you rely on research from your firm or outside parties in selecting stocks and money managers.? How do you go about monitoring portfolios or money managers?
- I understand that there are two schools of thought about trying to get in and out of the stock market. I know some advisors are fairly proactive about moving parts of portfolios to cash if they think the market is poised for a correction, while others believe you can’t effectively time when to get in and out and tend to be fully invested all the time. Where do you stand on this issue? As well, what’s your stance on making calls on getting in and out of individual sectors such as energy?
- How often do you typically meet with clients like me? How long do those meetings last? What do you cover in those meetings?
- How have you been communicating with clients like me since last fall? What have you been doing differently as a result of the market events since September?
- How frequently do you call clients like me between meetings? How long does it typically take to return calls from your clients?
- In ballpark terms, what would my annual fee be if we worked together, including fees charged by money managers?
- How are you paid? What kind of money would you make on my account annually? What would I get for that?
- Tell me about the team that you have supporting you.
- Would you be my primary contact or would I be dealing with one of them day to day? What kinds of issues would I be talking to them about as opposed to you?
The last 12 months
- How did you position client portfolios like mine going into the beginning of last year?
- What kinds of changes have you recommended to clients since last fall? What kind of advice are you providing to clients like me today? What are you doing to manage risk in client portfolios in light of how uncertain things seem to be these days?
- Without getting into the actual dollar amounts, in general terms would you be willing to share what you held in your own portfolio going into last fall and what your own portfolio looks like today?
- In your opinion, what are the most important lessons you’ve learned as a result of the events of the past year?
Tags: Apparent Success, Buying A House, Depth Discussions, Fit, Friend Doesn, Gathering Information, Globe And Mail, Investors, Jobs, Media Coverage, Objective, Odds, People, Referral, Relationship, Right Financial Advisor, Sit, T Rush, Taking The Time, Vicinity
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Sunday, September 19th, 2010
Every quarter, Merrill Lynch commissions a survey of 1000 affluent Americans with investments of at least $250,000.
Among the questions in the last survey in June was the importance of various financial advisory services.
Here were the top-rated responses from affluent investors:
– Provide proactive updates about whether they are on track with their financial goals (71 percent).
– Be proactive with investment advice (69 percent).
– Offer advice on how to maximize a 401(K) (68 percent). (Note: 401Ks are the US equivalent of group RRSPs, in which companies allow employees to invest part of their salary on a tax deferred basis)
– Understand the role their personal values play in their financial goals (67 percent).
– Provide holistic financial advice (66 percent).
– Help with ensuring necessary cash flow and liquidity (63 percent).
– Provide support with decisions regarding Social Security, Medicare, long-term care, etc. (60 percent).
The impact of proactive contact
There are a couple of notable things about this list.
First is the breadth of financial issues on which affluent investors want advice — going well beyond just investments.
And second, the top two results both related to an advisor being proactive.
This is consistent with what I hear from Canadian investors.
A business owner’s take on advice
One of the keys that busy clients look for in an advisor is someone who monitors their situation, so they don’t have to.
One million dollar plus business owner I talked to put it this way:
“I’ve got a lot of balls to juggle in my business.
What I look for in all of my professional advisors — my accountant, lawyer and financial advisor — is that they’re on top of things and will be in touch if there’s anything I need to know.
Because I’m confident they’re worrying about my situation, I don’t have to be concerned that I might be missing something.”
Tags: 401ks, Affluent Americans, Breadth, Business Owner, Canadian Investors, Effective Communication, Financial Advice, Financial Advisory Services, Financial Goals, Investment Advice, Liquidity, Long Term Care, Merrill Lynch, Missing Something, Necessary Cash Flow, One Million, Personal Values, Proactive Updates, Professional Advisors, Rrsps
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Sunday, September 19th, 2010
Occasionally, something we hear sticks in our minds and stays with us.
When I was in business school in the 1970s, my finance prof used a phrase that I often find useful in conversation with clients and investors — especially in markets such as we’re in today.
That phrase: “The pendulum never stops in the middle.”
My finance professor was one of the big names in the field — he consulted with many of the Wall Street firms and was frequently quoted in the press.
He used this phrase in the context of market valuations and market sentiment. He talked about the historical reality that markets inevitably swing from one extreme to another, from periods of outlandishly elevated valuations to ridiculously beaten down levels, from periods of unquestioning euphoria to absolute pessimism.
“The pendulum never stops in the middle” applies in lots of other cases as well.
Look at the market’s and media’s attitude to risk and leverage — a year ago companies that used insufficient leverage to boost profits were punished for being “dull and boring”, today even prudent risk has become a dirty word. (The most popular article in the online New York Times last week was a piece laying out Canadian banks as the model for the global banking system — a notion that six months ago would have been completely absurd.)
Consider investors’ attitudes to owning resource stocks — where not long ago loading up on these was all that many investors wanted to talk about, today they don’t even want to hear about owning resources.
This is also reflected in expectations on oil prices. A year ago, the “peak oil” theory held sway and demand from China and India was going to push oil to $200 by year end. Today we’ve begun to hear about the “peak demand theory”, the view that demand for oil peaked last year and we’ll never, ever see demand at that level again.
Recall all the investment fads and “flavour of the day” investments.
And think about the wild swing in consumer sentiment on appropriate spending that’s taken place in the last little while– from the norm of lavish expenditure to “the new frugality.”
The key point that my finance prof made was that while the stock market may be efficient and rational in the mid and long term, in the near term the “swinging of the pendulum” creates terrific opportunities for companies and for investors who can maintain their perspective.
That was true thirty years ago … and it’s arguably even truer today
So when talking to investors who are spooked by recent events and dire economic forecasts, consider talking about the fact that “the pendulum never stops in the middle”.
We may not be all the way to the extreme of despair and pessimism, but we are almost certainly well past the mid point — and into the area that we’ll look back on years from now and recognize that the drastic shift in sentiment has created significant value for those bold enough to look past the swinging of the pendulum and recognize it.
Tags: Banking System, Business School, Canadian Banks, Demand Theory, Dirty Word, Euphoria, Fads, Finance Prof, Finance Professor, Flavour, Global Banking, Market Sentiment, Market Valuations, New York Times, Oil Prices, Peak Demand, Peak Oil Theory, Pendulum, Pessimism, Resource Stocks
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Sunday, September 19th, 2010
“I’m a huge bull on this country … we won’t have a double dip recession. I see our businesses coming back almost across the board.” .…Warren Buffett, Berkshire Hathaway
“GE is now finding it profitable to build manufacturing and service centers in the United States rather than overseas, because it is more competitive to do so.” … Jeff Immelt, CEO, GE
“I am very enthusiastic about what the future holds” .… Steve Ballmer, CEO, Microsoft
One of the most important roles for advisors is to be an emotional anchor for clients … preventing the highs from being too high and the lows from being too low.
Today, many Canadians are pessimistic about the U.S. and global economies … driven in large measure by daunting headlines about slow growth, weak housing prices, high unemployment and deficit problems in much of the developed world, as well as political discord in Washington.
This pessimism is amplified by the media coverage given to voices of gloom such as Nouriel Roubini and David Rosenberg.
Presenting an upbeat outlook
That’s why a conference that took place just last Monday gives advisors the chance to provide clients with some offsetting perspective on the mid and long term positives for the United States.
Speaking on Monday September 13 to 2000 business and political leaders in Montana, Warren Buffett, Steve Ballmer of Microsoft and GE’s Jeff Immelt talked about good news at their companies and a positive outlook for the future.
Here are two articles on this conference that you can send clients, one from Bloomberg and other from Yahoo News:
And here are some of their comments:
Warren Buffett, Berkshire Hathaway:
“I’m a huge bull on this country … we won’t have a double dip recession. I see our businesses coming back almost across the board … … it’s night and day from a year ago.”
“I’ve seen sentiment turn sour in the last three months or so, generally in the media. I don’t see that in our businesses … we’re employing more people than a month ago, two months ago.”
“The things that worked for the country through a century of two world wars, a depression and more — all while increasing the standard of living — will work again.”
“Banks are lending money again, businesses are hiring employees and I expect the economy to come back stronger than ever.”
Steve Ballmer, Microsoft:
“There soon will be more technological advancement and invention than there was during the Internet era and that will help drive business growth.”
“I am very enthusiastic about what the future holds for our industry and what our industry will mean for growth in other industries.”
“We will see new technologies that move beyond the Internet to tie together computers, phones, televisions and data centers to create amazing new products. And the pace of innovation will increase as technology makes workers more productive.”
“All areas of science today are moving forward more quickly. The speed of scientific breakthrough is accelerating.”
Jeff Immelt, GE:
“Angry political rhetoric is not helpful and headlines are too focused on finding negative indicators.”
“Business at GE is improving. Signs across the world show growth improving as evidenced by a rise in GE’s orders.”
“GE is now finding it profitable to build manufacturing and service centers in the United States rather than overseas, because it is more competitive to do so.”
“The U.S.‘s central challenge will be to speed growth. We need an increase in exports of manufactured goods to help compete globally. Expansion will be further bolstered when smaller businesses and consumers regain confidence in banks and are able to borrow more.”
“We need people to be able to feel like they’re going to get loans, the process is going to work and that they understand the rules.”
“The U.S. is going to need to adjust, though. The economy since the 1970s has been driven by consumer credit and a misguided notion in building a “lazy” service economy. Manufacturing, with an aim to reduce the trade deficit, is the key.”
“The push for an exclusively service-based economy was just wrong. It was stupid. It was insane .The future of the economy has to be as an exporter.”
Tags: Berkshire Hathaway, Buffett Rules, Ceo Microsoft, David Rosenberg, Discord, Double Dip Recession, Economy Leaders, Emotional Anchor, Global Economies, Jeff Immelt, Last Monday, Lows, News Yahoo, Nouriel Roubini, Pessimism, Political Leaders, Positive Outlook, Steve Ballmer, Upbeat Outlook, Warren Buffett
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