The Bond Hedge

Wednesday, August 4th, 2010

This arti­cle is a guest con­tri­bu­tion by Michael Nairne, President, Toronto-based Tacita Cap­i­tal.

As the stock mar­ket ral­lies, investors can eas­ily lose sight of the real risk that they face – a long-drawn-out period of dis­mal equity returns. This month’s Com­men­tary inves­ti­gates the prob­a­bil­ity of this occur­rence over the next twenty years and ana­lyzes the impor­tant role of bonds in reduc­ing this risk

For the long-term investor, risk is not about volatil­ity – it is about a long-drawn-out period of dis­mal stock returns. Investors in U.S. equi­ties are suf­fer­ing the full brunt of this real­ity, as evi­denced by the fol­low­ing graph that depicts the cumu­la­tive value of $1.00 invested in the S&P 500. Investors have endured eleven years of ups and downs to find they are back to where they were in March 1998.

And mind you, this gloomy per­for­mance is before the per­for­mance drag of costs and taxes. For retirees liv­ing on invest­ment returns, the result has been noth­ing short of catastrophic.

How­ever, the risk of pro­tracted bleak per­for­mance has always been a facet of equity invest­ing. The nexus of exces­sive stock val­u­a­tions and a mas­sive eco­nomic shock that leads to plung­ing stock prices, mon­e­tary insta­bil­ity and sub­par growth can result in years of dis­ap­point­ing returns.

This risk becomes appar­ent when you look at the range of stock val­ues that could arise in the future. The fol­low­ing graph is a sim­u­la­tion of poten­tial val­ues of the S&P 500 over the next 20-years start­ing with an ini­tial value of 1.00. Based on the aver­age return and volatil­ity of the S&P 500 since 1926, it uses long-term his­toric expe­ri­ence to extrap­o­late a range of pos­si­ble outcomes.

The median out­come as shown in green (i.e. the 50 per­centile) is the rea­son growth-oriented investors empha­size equi­ties in their asset mix — $1.00 invested today could grow to $6.28 in 20 years. On the upside shown in red, there is a 5 per­cent chance (i.e. the 95th per­centile), $1.00 could grow to $25.35 or more. Equity investors in Jan­u­ary 1980 actu­ally enjoyed such a rare and for­tu­itous outcome.

On the down­side shown in blue, there is a 5 per­cent chance that $1.00 could grow to a mere $1.55 or less in twenty years. In this gloomy sce­nario, stock returns are deeply in the red for seven years and barely turn pos­i­tive after twelve long years. It is this poten­tial out­come of long-term poor equity returns that must con­cern investors, par­tic­u­larly retirees, in their port­fo­lio planning.

The anti­dote to this risk is diver­si­fy­ing into high qual­ity bonds; in par­tic­u­lar, bonds backed by “the full faith and credit” (i.e. the full tax­ing author­ity) of gov­ern­ments. The fol­low­ing graph depicts the ten-year rolling returns of U.S. intermediate-term gov­ern­ment bonds (in green) com­pared to those of the S&P 500 (in red). It illus­trates that there have been lengthy peri­ods in the late 1930’s/early 1940’s and the mid 1970’s/early 1980’s where the ten-year return of gov­ern­ment bonds out­per­formed that of stocks. Most recently, gov­ern­ment bonds had a ten-year aver­age annual return of 6.1%, a decided con­trast to the –1.7% return of stocks.

There are two rea­sons that gov­ern­ment bonds offer a port­fo­lio down­side pro­tec­tion. One is self-evident; gov­ern­ment bonds offer a high cer­ti­tude of future cash pay­ments due to their neg­li­gi­ble default risk – tax­ing author­ity is a pow­er­ful instru­ment in a wealthy soci­ety. The result is a much lower down­side, as illus­trated in the fol­low­ing graph which depicts a sim­u­la­tion of poten­tial val­ues of intermediate-term gov­ern­ment bonds over the next twenty-years based on an index value of 1.00 as of June 2009.

In the rea­son­able “worst case” sce­nario depicted in blue (i.e. the 5th per­centile), the gov­ern­ment bond value turns pos­i­tive in just over two years and after twenty years has a final wealth index value of $2.07 — sig­nif­i­cantly higher than stocks at $1.55. The oppor­tu­nity cost, how­ever, is mate­r­ial — the higher return poten­tial of stocks is entirely foregone.

The sec­ond rea­son is more sub­tle. On aver­age, gov­ern­ment bond returns are not cor­re­lated to stock returns — there is no real pat­tern of co-movement. Bonds will some­times do well when stocks are doing poorly and vice versa but other times they will per­form in uni­son. How­ever, cor­re­la­tions are not con­stant and dur­ing peri­ods of extreme eco­nomic con­trac­tion and defla­tion, the cor­re­la­tion between gov­ern­ment bonds and stocks goes deeply neg­a­tive – gov­ern­ment bonds do well and stocks do poorly.

The result is that when gov­ern­ment bonds are com­bined with stocks you get a more diver­si­fied port­fo­lio that pro­vides supe­rior down­side pro­tec­tion with a rea­son­able oppor­tu­nity for growth. This is evi­denced in the fol­low­ing graph that depicts a sim­u­la­tion of the poten­tial val­ues of a bal­anced port­fo­lio com­prised of 60 per­cent stocks and 40 per­cent intermediate-term bonds over the next 20-years.

In the rea­son­able “worst case” sce­nario depicted in blue (i.e. the 5th per­centile), the bal­anced port­fo­lio value suf­fers only mod­er­ate losses ini­tially, turns pos­i­tive in six years and after twenty years has a final wealth index value of $2.13 — higher than both bonds at $2.03 and stocks at $1.55. Yet, the median out­come results in a twenty-year wealth index value of $4.96, nearly 80 per­cent of the much riskier stock median value of $6.28, and sig­nif­i­cantly ahead of the bond median value of $2.84.

In short, in nor­ma­tive mar­kets, the bal­anced port­fo­lio cap­tures much of the upside of stocks. Only dur­ing extreme long-term bull mar­kets like the 1980’s and 1990’s is the oppor­tu­nity cost of a bal­anced port­fo­lio high.

In invest­ment jar­gon, a hedge is a posi­tion in one asset that off­sets the price risk of another asset. For the long-term investor, gov­ern­ment bonds are an essen­tial hedge against a long-drawn-out period of dis­mal stock returns. The cur­rent robust rally should not blind investors to this fun­da­men­tal reality.

About the author, Michael Nairne
Prior to co-founding Tacita Cap­i­tal, Michael was the Chief Oper­at­ing Offi­cer of Lor­ing Ward Inc., a fam­ily office located in New York and Los Ange­les. Michael was also a co-founder and Vice Chair­man of Assante Cor­po­ra­tion, Lor­ing Ward’s for­mer par­ent com­pany, prior to its sale in 2003. Dur­ing his tenure, Assante grew from $1 bil­lion to over $20 bil­lion in assets under administration.

Michael has writ­ten and spo­ken exten­sively on wealth man­age­ment mat­ters, and has co-authored a best seller on fund man­age­ment. For sev­eral years, he chaired the Invest­ment Com­mit­tee of LWI Finan­cial Inc. which cur­rently man­ages over $4 bil­lion in assets.

Dis­claimer:
Tacita Cap­i­tal Inc. (“Tacita”) research has been pre­pared with­out regard to the indi­vid­ual finan­cial cir­cum­stances and objec­tives of per­sons who receive it and is not intended to replace indi­vid­u­ally tai­lored invest­ment advice. The asset classes/securities/instruments/strategies dis­cussed may not be suit­able for all investors and cer­tain investors may not be eli­gi­ble to pur­chase or par­tic­i­pate in some or all of them. The appro­pri­ate­ness of a par­tic­u­lar invest­ment or strat­egy will depend on an investor’s indi­vid­ual cir­cum­stances and objec­tives. Tacita rec­om­mends that investors inde­pen­dently eval­u­ate par­tic­u­lar invest­ments and strate­gies, and encour­ages investors to seek the advice of a finan­cial advisor.

Tacita research is pre­pared for infor­ma­tional pur­poses. Nei­ther the infor­ma­tion nor any opin­ion expressed con­sti­tutes a solic­i­ta­tion by Tacita for the pur­chase or sale of any secu­ri­ties or finan­cial prod­ucts. This research is not intended to pro­vide tax, legal, or account­ing advice and read­ers are advised to seek out qual­i­fied pro­fes­sion­als that pro­vide advice on these issues for their indi­vid­ual circumstances.

Tacita research is based on pub­lic infor­ma­tion. Tacita makes every effort to use reli­able, com­pre­hen­sive infor­ma­tion, but we make no rep­re­sen­ta­tion that it is accu­rate or com­plete. We have no oblig­a­tion to inform any par­ties when opin­ions, esti­mates or infor­ma­tion in Tacita research changes.

All invest­ments involve risk includ­ing loss of prin­ci­pal. The value of and income from invest­ments may vary because of changes in inter­est rates or for­eign exchange rates, secu­ri­ties prices or mar­ket indexes, oper­a­tional or finan­cial con­di­tions of com­pa­nies or other fac­tors. There may be time lim­i­ta­tions on the exer­cise of options or other rights in secu­ri­ties trans­ac­tions. Past per­for­mance is not nec­es­sar­ily a guide to future per­for­mance. Esti­mates of future per­for­mance are based on assump­tions that may not be real­ized. Man­age­ment fees and expenses are asso­ci­ated with investing.

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Tags: 95th Percentile, Asset Mix, Brunt, Cumulative Value, Economic Shock, Eleven Years, Initial Value, Investment Returns, Investor Risk, Monetary Instability, Next Twenty Years, Performance Drag, Stock Prices, Stock Returns, Stock Valuations, Stock Values, Term Investor, Ups, Ups And Downs, Volatility
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Business planning for 2009: More lessons from a trek up Kilimanjaro

Wednesday, July 21st, 2010

Many advi­sors are using the hol­i­day break to reflect on their busi​ness​.In two columns last fall, I detailed ten lessons from a 2004 trek up Mount Kil­i­man­jaro that might be help­ful as advi­sors think about plans for the year ahead.

Last Mon­day, I high­lighted the first four lessons. Today, I sum­ma­rize six more take­aways from a trek up Kil­i­man­jaro and com­plete my “top ten” list.

Last week’s busi­ness plan­ning lessons were:

1. Set stretch goals

2. Invest the time to pick the right strategy

3. Put a plan in place that tilts the odds in your favour

4. Pick your part­ners carefully

This week’s lessons from Kilimanjaro:

5. Ensure you have the right team behind you.

Kil­i­man­jaro: While climbers get the glory, the real heroes are the porters who haul the gear, unac­knowl­edged but instru­men­tal to suc­cess.

Advi­sors: Suc­cess­ful advi­sors are almost always sup­ported by capa­ble, moti­vated staff — and invest­ing the time, energy and money to put strong sup­port staff in place is essential.

6. Focus on the imme­di­ate step ahead.

Kil­i­man­jaro: When tired, dis­cour­aged and faced with tough con­di­tions, climbers need to con­cen­trate on tak­ing the very next step, not the entire jour­ney ahead of them.

Advi­sors: When daunted by the mag­ni­tude of the chal­lenges fac­ing them, advi­sors need to focus on mak­ing the very next meet­ing or the very next call successful.

7. Focus on the big picture.

Kil­i­man­jaro: If all they do is look at the rocky ground where they’re putting their feet next, climbers miss spec­ta­colour views behind and ahead of them and the moti­va­tion this brings. Climbers need to bal­ance focus on the next step with an occa­sional glance at what’s behind them and ahead of them.

Advi­sors: To stay moti­vated, advi­sors need to take time for an occa­sional pause to reflect on where you’ve been and the big­ger pic­ture — and to reflect on where all the indi­vid­ual steps are tak­ing you.

8. Suck it up when the going gets tough.

Kil­i­man­jaro: Get­ting to the top of Kil­i­man­jaro inevitably means work­ing through some pain and dis­com­fort along the way — when encoun­ter­ing this, com­plain­ing isn’t pro­duc­tive, all you can do is sum­mon up the dis­ci­pline to stay focused on your goal.

Advi­sors: Every suc­cess­ful advi­sor has encoun­tered set­backs, dis­ap­point­ments, frus­tra­tion and dis­com­fort along the way. To achieve true suc­cess, you need the deter­mi­na­tion and com­mit­ment to work through these.

9. Enjoy the moment.

Kil­i­man­jaro: While nat­ural to cel­e­brate when reach­ing the top of Kil­i­man­jaro, it’s also impor­tant to rec­og­nize mile­stones along the way — a tough hill climbed, a hard day behind you. It’s those cel­e­bra­tions that help pro­vide the moti­va­tion to work through adversity.

Advi­sors: Build time into your quar­terly, monthly, weekly and daily rou­tine to reflect on and acknowl­edge the small suc­cesses — tak­ing the time to enjoy what you’ve achieved will help pro­vide energy for the path ahead.

10. Begin by beginning.

Kil­i­man­jaro: There are lots of deci­sions entailed in climb­ing Kil­i­man­jaro — and it’s easy to get over­whelmed by these. Ulti­mately, the most impor­tant part of the jour­ney is the com­mit­ment to start it, to begin by beginning.

Advi­sors: Some advi­sors are par­a­lyzed by the many deci­sions in their busi­ness — here too the key is to focus on one deci­sion at a time, make that deci­sion and then move on to the next.

As you reflect on your plans for 2009, con­sider what lessons from past expe­ri­ences can guide your busi­ness for­ward and help you reach your full potential.

For those inter­ested in read­ing the com­plete arti­cles about lessons from a trek up Kilimanjaro:

Part One:  http://​www​.invest​mentex​ec​u​tive​.com/​c​l​i​e​n​t​/​e​n​/​N​e​w​s​/​D​e​t​a​i​l​N​e​w​s​.​a​s​p​?​I​d​=​4​6​2​2​7​&​a​m​p​;​c​a​t​=​3​0​&​a​m​p​;​I​d​S​e​c​t​i​o​n​=​3​0​&​a​m​p​;​P​a​g​e​M​e​m​=​&​a​m​p​;​n​b​N​e​w​s​=​&​a​m​p​;​I​d​P​u​b​=​168

Part Two: http://​www​.invest​mentex​ec​u​tive​.com/​c​l​i​e​n​t​/​e​n​/​N​e​w​s​/​D​e​t​a​i​l​N​e​w​s​.​a​s​p​?​I​d​=​4​6​6​5​6​&​a​m​p​;​c​a​t​=​3​0​&​a​m​p​;​I​d​S​e​c​t​i​o​n​=​3​0​&​a​m​p​;​P​a​g​e​M​e​m​=​&​a​m​p​;​n​b​N​e​w​s​=​&​a​m​p​;​I​d​P​u​b​=​170

For more infor­ma­tion, please visit http://​www​.get​keep​clients​.com.

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Tags: Big Picture, Business Planning, Challenges, Climbers, Favour, Journey, Last Monday, Magnitude, Motivation, Mount Kilimanjaro, Occasional Glance, Odds, Porters, Real Heroes, Stretch Goals, Support Staff, Takeaways, Time Energy, Top Ten List, Trek
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Marketing for Financial Advisors — Differentiate, Develop a niche and Thrive

Wednesday, July 21st, 2010

An excel­lent inter­view is posted at the Knowledge@Wharton, with three Whar­ton School pro­fes­sors, who have recently penned a new book on Finan­cial Advi­sor mar­ket­ing, aptly titled, “Mar­ket­ing for Finan­cial Advi­sors : Build Your Busi­ness by Estab­lish­ing Your Brand, Know­ing Your Clients and Cre­at­ing a Mar­ket­ing Plan,” by Eric T. Brad­low and Patti Williams, and Keith Niedermeier.

Get it here from Ama­zon

The three­some of pro­fes­sors get into a detailed dis­cus­sion of how to dif­fer­en­ti­ate your­self from your peers, gain mar­ket share dur­ing mar­ket slumps, and lead unhappy clients away from other advisors.

There is both a tran­script and audio of the inter­view here.

You can lis­ten to the inter­view feed from K@W here. Click play to listen

Inter­view: Mar­ket­ing for Finan­cial Advisors

Here is an excerpt:

Do dif­fi­cult times call for retreat or attack?

Keith Nie­der­meier: Sure. We see the dif­fi­cult eco­nomic times cer­tainly as prob­lem­atic for advi­sors, but more as an oppor­tu­nity. While advi­sors may be hav­ing prob­lems with their clients, cer­tainly the com­pe­ti­tion is also, which sug­gests this is the time to under­stand your cus­tomers and your clients bet­ter than any other time. It’s an oppor­tu­nity to lock down the clients you have and to cre­ate oppor­tu­ni­ties to get more clients — dis­sat­is­fied clients from other advi­sors. So, Eric, would you like to add to that?

Eric Brad­low: Yes. One of the things we dis­cuss in the for­ward of the book, which has got­ten a lot of buzz, is whether this is a time to attack or retreat? And one of the things we stress in the book is, as you pointed out, that this is an oppor­tu­nity to gain ground against other finan­cial advi­sors. And so we see this as an oppor­tu­nity to attack.

Choose three words that best describe what your prospects take away from your practice/meetings:

Patti Williams: … One of the most impor­tant things that we empha­size in the book is think­ing about your busi­ness, if you’re a finan­cial advi­sor, as a brand. A lot of finan­cial advi­sors are a lit­tle bit afraid of mar­ket­ing, they didn’t get into the busi­ness to be mar­keters. They don’t want to be per­ceived as tak­ing advan­tage of their cus­tomers through mar­ket­ing. But a lot of what they’re doing is actu­ally mar­ket­ing. And we tell them they should think about those three words and really think about the nature of the brand they want to deliver to their cus­tomers. What do they want to be? Who do they want to be to their clients? And how can they set up their entire prac­tice around build­ing that image and that capa­bil­ity so that they can truly be what they want to be to their clients.

K@W is an excel­lent site replete with busi­ness resources, research, and analysis.

Source: Knowledge@Wharton, July 22, 2009

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Tags: Advis, Amazon, Difficult Times, Dissatisfied Clients, Economic Times, Eric T, Excerpt, Financial Advisors, Gain Market Share, Important Things, Kw, Marketing Plan, Niche, Niedermeier, Patti Williams, Peers, Practice Meetings, Prospects, School Professors, Slumps, Threesome, Unhappy Clients, Upenn, Wharton School
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A Tip from a Top Advisor

Wednesday, July 14th, 2010

Recently, I was talk­ing to a suc­cess­ful advi­sor who met with one of his top clients – and made a mis­take that he vowed never to repeat.

In review­ing per­for­mance of the client’s port­fo­lio, he said: “Your port­fo­lio was down 15% last year, which was pretty good in the circumstances.”

The client looked at him, paused and said: “It may have been 15% to you, but it was $300,000 to me.”

The advi­sor recov­ered and the meet­ing wrapped up ami­ca­bly, but this advi­sor walked away with two resolutions.

First, never again to dimin­ish the amount of money a client loses.

And sec­ond, to remem­ber that while we often think about per­for­mance in per­cent­ages, clients tend to think about their port­fo­lios in dol­lar terms.

As you think about your con­ver­sa­tions with clients over the past while, con­sider whether you’ve fallen into the same traps of dimin­ish­ing losses and talk­ing in per­cent­ages vs dol­lars – and whether you too need to be more aware of this going forward.

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Tags: Amount Of Money, Circumstances, Conversations With Clients, Dollar Terms, Losses, Met, Mistake, Percentages, Portfolios, Resolutions, Target, Tip Top, Traps
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A Reading on Investor Sentiment

Wednesday, June 16th, 2010

Since Sep­tem­ber, much of my time has been spent talk­ing to investors, get­ting a han­dle on their sentiment.Of late, many advi­sors have asked how investors are feel­ing. Here are the answers to five com­mon ques­tions on how investors are feel­ing and what they’re doing.Over­all mood:

It’s worth not­ing first that the major­ity of investors are much less depressed and anx­ious about mar­kets than advi­sors — in large mea­sures because they’re hav­ing the dif­fi­cult con­ver­sa­tions all day, every day that advi­sors find them­selves in.

Also of note is that what started as mar­ket con­cerns early last fall has changed today to broad­based and more fun­da­men­tal con­cerns about the health and direc­tion of the over­all economy.

Most investors, espe­cially younger ones under 50, are gen­er­ally accept­ing of the down­turn — no one’s happy about what’s hap­pened to mar­kets but most take the view they can’t do any­thing about this at this point except wait for a recov­ery; there is a stoic accep­tance of “we’re all in this together” and a broad play­ing back of “mar­kets go up and mar­kets go down and always come back.”

The older the investor, the higher the level of anx­i­ety and stress  — some investors are start­ing to pick up on the neg­a­tive media  com­men­tary about the pos­si­bil­ity of another depres­sion or a replay of Japan, off 75% from 20 years ago. Note that until recently, some investors were in “state­ment denial”, where they didn’t open or look at their state­ments, although year end state­ments are bring­ing real­ity home.

Cash­ing money out of the market

There’s been a gen­eral desen­si­ti­za­tion towards mar­ket moves — a 300 point move is no longer note­wor­thy for either the media or investors. Few investors appear to have with­drawn their money from the mar­kets (”it’s too late”) but the major­ity seem to be leav­ing any new money on the side­lines until they see a mar­ket turn­around — this is the same pat­tern as 2002/2003. Note that there are a small num­ber of investors say­ing “Is it time to buy yet?”

Con­fi­dence in advi­sors and finan­cial institutions

There has been sig­nif­i­cant ero­sion of con­fi­dence in and trust towards finan­cial insti­tu­tions and finan­cial advi­sors. Some investors are angry at their advi­sors / firms — in some cases about what’s seen as over­selling the abil­ity to pre­dict mar­kets, in oth­ers about what investors con­sider poor advice (”I was told own­ing bank and life com­pany stocks was safe for con­ser­v­a­tive investors”) and in some instances because of unre­al­is­tic expec­ta­tions (”Why wasn’t I told to get out? Firms must have known”).

Other investors are upset about lack of con­tact from their advi­sor or imper­sonal com­mu­ni­ca­tion (”A form let­ter doesn’t cut it”).

Atti­tudes to advice from advisors

There is a grow­ing back­lash against pas­sive, “buy and hold” strate­gies and advi­sors who fail to pro­vide direc­tion– a sig­nif­i­cant num­ber of investors talk about want­ing more proac­tive advice.

There’s lots of con­fu­sion about how the cur­rent prob­lems devel­oped, the money that gov­ern­ments are throw­ing at banks, the auto indus­try bailout and what this all means …. many investors report that they are get­ting lim­ited assis­tance from their advi­sors in under­stand­ing the back­ground to what’s hap­pened to mar­kets and the economy.

Chang­ing advisors

A few investors either have changed advi­sors or have decided to change advi­sors — but most are going to stick with “the devil they know” for now at least;  it may not be great where they are but they’re not going to be move unless they’re con­fi­dent another advi­sor will be bet­ter. In some cases, investors say that they’re wait­ing for their invest­ments to come back before mak­ing a change.  Note that there has been a shift among some investors in both Canada and the United States towards “do it your­self” online bro­kers — this is a sig­nif­i­cant dif­fer­ence from what hap­pened after the tech crash.

The bot­tom line

The mar­ket tur­moil since last fall has caused many investors to reassess their rela­tion­ships with advi­sors. While the level of investor move­ment from one advi­sor to another has been rel­a­tively minor to this point, mar­ket events have cre­ated a dra­matic oppor­tu­nity for advi­sors who are able to demon­strate value and tell their story to prospects in cred­i­ble fashion.

For more infor­ma­tion please visit http://​www​.get​keep​clients​.com.

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Tags: Denial, Depression, Desensitization, Difficult Conversations, Downturn, Economy, Fundamental Concerns, Investor Sentiment, Investors, Level Of Anxiety, Measures, Media Commentary, New Money, Point Move, Replay, Sidelines, Stress, Turnaround, Year End, Younger Ones
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Three steps to building prospecting momentum

Tuesday, May 18th, 2010

Given mar­kets over the past year, today should be a great time to be bring­ing new clients on board — after all, his­tory shows that clients move when they’re unhappy, not when things are going well.

Advi­sors need to do three things to take advan­tage of this opportunity:

1. Con­vic­tion and confidence

Many advi­sors tell me they have seen an ero­sion in con­fi­dence around their abil­ity to pro­vide good advice and serve clients well. Being con­fi­dent in the value you bring is the nec­es­sary first step to prospect­ing success.

2. Pri­or­ity

Sec­ond, you need to carve out the time to focus on prospects, whether it be two hours a week or twenty two. In my con­ver­sa­tions with advi­sors, many say that exist­ing clients con­sume all their time and there’s no energy left over to focus on prospects. This is some­times avoid­ance behav­iour, ignor­ing the real­ity that almost every advi­sor will see client defec­tion in the period ahead and that new clients will be needed just to main­tain assets at the exist­ing level.

3. Approach

Finally, even advi­sors who are talk­ing to prospects about pro­vid­ing a sec­ond opin­ion report that the response is often an indif­fer­ent one. Even if you bring con­fi­dence in your advice and give prospect­ing pri­or­ity, you need an approach that responds to today’s investor reality.

That approach has to address the level of skep­ti­cism that marks many of today’s investors — they’re not just dubi­ous about their own finan­cial insti­tu­tion and finan­cial advi­sor, many are skep­ti­cal about all finan­cial insti­tu­tions and all finan­cial advi­sors. As a result, even investors that aren’t all that happy are often reluc­tant to move, not sure it would be bet­ter else­where and tak­ing a “devil you know” view towards mak­ing a change.

The result is that with many investors, you have to earn the right to get them to share their state­ments and give you the oppor­tu­nity to pro­vide a sec­ond opinion.

If you’ve been com­mu­ni­cat­ing with prospects reg­u­larly over the past cou­ple of years, chances are you’ve earned that right.

And if you’ve built recog­ni­tion, cred­i­bil­ity and vis­i­bil­ity in the com­mu­nity a prospect belongs to, this may not be an issue.

But if you’re going at this from a stand­ing start, you will often need to start by build­ing trust.

Here’s how one Chairman’s Club level advi­sor went about doing this last fall.

In late Sep­tem­ber, she approached her clients and said: “Given mar­kets over the last while, my team and I are spend­ing a lot of our day stay­ing on top of all the avail­able infor­ma­tion on what’s hap­pen­ing. Going for­ward, I’m going to be select­ing one arti­cle each week that I think is par­tic­u­larly use­ful and send­ing it on Fri­day after­noon to any clients that are inter­ested in get­ting this. The sources of that arti­cle could be as diverse as The Wall Street Jour­nal, the Econ­o­mist or a com­men­tary from a lead­ing money man­ager. Is this some­thing you’d be inter­ested in receiving?”

The response was over­whelm­ing pos­i­tive — clients were anx­ious, the sources she talked about were cred­i­ble and she was send­ing only one article.

She then approached prospects, explain­ing that she was send­ing one arti­cle each week to any clients who were inter­ested and would be happy to extend this to that prospect as well. Again, she got a very pos­i­tive reaction.

Six weeks later, in early Novem­ber, she began fol­low­ing up with these prospects. She asked them if they had any ques­tions on the most recent arti­cle she’d sent and also asked if they’d like to sched­ule a time in the next two or three weeks to sit down and talk about what was going on in the mar­kets and about their own sit­u­a­tion. While not every­one she talked to jumped at the offer, the response was gen­er­ally very pos­i­tive — even peo­ple who didn’t want to meet right then gen­er­ally left the door open to talk­ing in early 2009.

Every advi­sor is dif­fer­ent and no approach will work for every­one. Just bear in mind that to cap­i­tal­ize on today’s prospect­ing oppor­tu­nity, you need con­vic­tion about your value, the right level of pri­or­ity and a process that is aligned with today’s investor real­ity. Put those three things in place and you too will see new clients come on board.

For more infor­ma­tion about Dan Richards, visit http://​www​.get​keep​clients​.com

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Tags: Assets, Avoidance Behaviour, Confidence, Conversations, Conviction, Defection, Devil, Erosion, Financial Advisors, Financial Institution, Financial Institutions, Good Advice, Great Time, Level 3, Momentum, Priority, Prospects, Second Opinion, Skepticism, Three Steps
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Breaking through the procrastination logjam

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.

Step Two:

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.

Step Three

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.

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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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Articles You Can Send Your Clients (August 5, 2009)

Wednesday, March 10th, 2010

This last week has been marked with the con­tin­u­a­tion of the great melt-up in the mar­kets, with more con­fir­ma­tion com­ing from the mar­kets in the form of tried and true rules of thumb pass­ing a stamp of approval, such as Dow The­ory Let­ters call­ing of the bull mar­ket. In addi­tion, their has been renewed strength com­ing from the com­modi­ties sec­tor with oil prices creep­ing still higher, a rea­son for many Cana­dian investors to be happy. On the eco­nomic front, the Case Shiller Hous­ing Index reg­is­tered what some are say­ing is a bot­tom, and that was taken as very pos­i­tive news. Whether this is a sec­u­lar or cycli­cal “bull,” there are still rea­sons to believe that we are far from the end of this rally, at least for now.

Here are today’s arti­cles you can send clients. Our selec­tion arti­cles focuses on invest­ing fun­da­men­tals, con­fir­ma­tion of the com­modi­ties com­plex play from Nouriel Roubini, and the new val­ues required for “Buy and Hold” Investors.

Invest­ing fun­da­men­tals are an impor­tant area of focus, as it turns out that often the very best advice is the clas­si­cal advice, from none other than Ben­jamin Gra­ham, on how impor­tant it is that you pay the right price, the best price for equi­ties and other assets, no mat­ter the con­di­tions of the market.

Pricin­ples of Value Invest­ing Still Hold True, by Dan Richards, August 4, 2009

At a recent lunch with a group of finan­cial indus­try insid­ers, a debate arose over the top investor of all time.

Some of the names put for­ward were obvi­ous: War­ren Buf­fett, Peter Lynch, John Tem­ple­ton and George Soros; one con­trar­ian made the case for J.P. Mor­gan or the Roth­schilds. Per­son­ally, I was with the contrarian.

But when con­ver­sa­tion shifted to the most influ­en­tial investor, the one per­son whose beliefs most trans­formed the invest­ment pro­fes­sion, there was uni­ver­sal agree­ment on Ben­jamin Gra­ham, con­sid­ered the father of value invest­ing, yet a name unknown to the aver­age investor.

Nouriel Roubini, the her­alded perma-bear pro­fes­sor, and econ­o­mist from NYU and RGE Mon­i­tor, con­firms that com­mod­ity prices may rise in 2010:

Roubini says Com­modi­ties May Rise in 2010, Rebecca Keenan, Bloomberg

Com­mod­ity prices may extend their rally in 2010 as the global reces­sion abates, said Nouriel Roubini, the New York Uni­ver­sity econ­o­mist who pre­dicted the finan­cial crisis.

“As the global econ­omy goes toward growth as opposed to a reces­sion, you are going to see fur­ther increases in com­mod­ity prices espe­cially next year,” Roubini said today at the Dig­gers and Deal­ers min­ing con­fer­ence in Kal­go­or­lie, West­ern Aus­tralia. “There is now poten­tially light at the end of the tunnel.”

FT​.com pub­lished an excel­lent arti­cle about how “Buy and Hold” investors may have to adjust their mind­set to this mar­ket, and pro­vides the point of view of sev­eral of the mar­kets fore­most strategists:

Buy and Hold investors need to learn a new set of val­ues, David Stevenson

“Buy and hold” invest­ing – to cap­ture the long-term out­per­for­mance of west­ern equity mar­kets over other asset classes – is now being called into ques­tion by a num­ber of lead­ing ana­lysts, who sug­gest that a new approach to “value invest­ing” will deliver bet­ter returns.

In a chal­lenge to the received wis­dom of hold­ing stock mar­ket invest­ments for 20 years or more, to smooth out short-term volatil­ity, some sug­gest that mea­sures of cheap­ness can be used to make buy­ing deci­sions and enhance performance.

These new approaches have emerged from a series of FT Money inter­views with invest­ment strate­gists, econ­o­mists and aca­d­e­mics – now avail­able as a two-part audio doc­u­men­tary at www​.ft​.com/​m​o​n​e​y​s​how.

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Tags: Benjamin Graham, Canadian Investors, Case Shiller Housing Index, Commodities, Confirmation, Continuation, Dow Theory Letters, Economic Front, George Soros, Industry Insiders, J P Morgan, John Templeton, New Values, Nouriel Roubini, Oil Prices, Perma, Peter Lynch, Positive News, Rally, Rothschilds, Rules Of Thumb, Stamp Of Approval, Universal Agreement, Warren Buffett
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A simple strategy to make change happen

Wednesday, February 3rd, 2010

This week I began a series of half day work­shops address­ing oppor­tu­ni­ties for advi­sors in the cur­rent investor mind​set​.In those work­shops, I tackle the num­ber one prob­lem for most advi­sors attend­ing train­ing ses­sions —  trans­lat­ing the ideas they get into action. I also out­line some sim­ple strate­gies to put new strate­gies in place — includ­ing the sin­gle most suc­cess­ful approach I’ve come across to make change happen.Note that there is sel­dom a prob­lem get­ting enough good ideas — rather the typ­i­cal issue relates to get­ting too many.  As a result, advi­sors walk away filled with good inten­tions — but do nothing.

So here’s an idea to imple­ment change in your practice.

Start by writ­ing down all the things you’d like to do this year to move your busi­ness for­ward — per­haps set some time aside to dis­cuss this with your team.

Hav­ing done that, pick the one idea that would have the biggest impact on your busi­ness — and set the rest aside.

In the next 90 days, resolve to focus in a sin­gle minded fash­ion on putting that change in place. Dis­cuss this change with your team, estab­lish weekly goals for what you’re going to do to move this for­ward, set aside time in your cal­en­dar every week to work on that change and mon­i­tor progress into your daily and weekly progress review.

Changes are that at the end of 90 days you will have built good momen­tum on putting that change in place. …. at which point you pick a sec­ond area to work on.

By focus­ing on one change to your busi­ness at a time and set­ting aside focused time to make that change hap­pen, you dra­mat­i­cally increase the odds of trans­lat­ing good inten­tions into reality.

And over time, you increase the chances of tap­ping the real poten­tial of your business.

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Tags: Calendar, Fashion, Focus, Good Intentions, Investor, Mindset, Momentum, Odds, Sessions, Typical Issue, Weekly Goals
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