A Q3 Letter to Clients – Insights from a Wall Street Legend

Wednesday, October 3rd, 2012

by Dan Richards, Cli​entIn​sights​.ca

Each quar­ter since 2008, I have posted a tem­plate for a let­ter to serve as a start­ing point for advi­sors look­ing to send clients an overview of the past 90 days and the out­look for the period ahead.

Advi­sors have told me they’ve received a great response to these let­ters and the tem­plates rank among my most pop­u­lar arti­cles – that’s espe­cially the case in uncer­tain times such as we see today.

This quarter’s let­ter has three parts:

1. An update on performance

2. Per­spec­tives from leg­endary investor Bar­ton Biggs

3. Your rec­om­men­da­tions for the period ahead

Use as much or as lit­tle of the con­tent as is appro­pri­ate for your approach. Note that while the insights from Biggs are inter­est­ing, this let­ter is run­ning long, so I rec­om­mend that you delete some or all of the Bar­ton Biggs sec­tion or scale back some of the con­tent regard­ing what investors should be doing today.

Just a reminder that if you’re going to use this let­ter, be sure to take the time to cus­tomize it and put it into your own words, so that it truly does rep­re­sent your point of view.

Where we stand in 2012 –Insights from a Wall Street legend

As we enter Octo­ber, we’re now three quar­ters through a very event­ful 2012.

I’m writ­ing to pro­vide per­spec­tive on what’s hap­pened this year and to share my thoughts on how to posi­tion port­fo­lios for the period ahead. To help do that, I’ve tapped into insights from Bar­ton Biggs, a leg­endary observer of the invest­ment scene who passed away ear­lier this year after 40 years in the invest­ment indus­try.  Before we get into his views, here’s a sum­mary of 2012 to date.

This year has been a tale of three quar­ters, with returns to the end of Sep­tem­ber of a pos­i­tive 5% in Canada. Note that this is the third con­sec­u­tive year of sub­stan­tial under­per­for­mance by Cana­dian stocks -  2012 has seen gains of 16% in the U.S. and 13% globally.

The first quar­ter saw the strongest start for the U.S. stock mar­ket since 1998, dri­ven by a reduc­tion of fears about Europe, as well as stronger eco­nomic data in the U.S.  The sec­ond quar­ter gave many of those gains back, due to esca­lat­ing con­cerns about the Euro­pean cur­rency union and slow­ing global growth, accom­pa­nied by dis­cour­ag­ing data on employ­ment. We also saw a slow­down in China and India, putting down­ward pres­sure on the prices of oil and other com­modi­ties and stocks in general.

The last quar­ter saw mar­kets bounce back, as the U.S. Fed­eral Reserve Board and the Euro­pean Cen­tral Bank (ECB) put mea­sures in place to sta­bi­lize economies and to boost growth prospects. In par­tic­u­lar, Euro­pean con­fi­dence was boosted by the ECB’s announce­ment that it would back­stop Greece, Spain and other coun­tries whose economies are struggling.

Here’s a sum­mary of global mar­ket per­for­mance in 2012 to date, all in local currency.

Source: MSCI returns includ­ing div­i­dends, all returns in local currency

Guid­ance from a Wall Street legend

Of course look­ing back is the easy part of invest­ing – look­ing for­ward is more chal­leng­ing. To help me do that, one of the sources I’ve always looked to has been leg­endary Wall Street vet­eran Bar­ton Biggs. Given that my phi­los­o­phy is aligned with Biggs, I thought it worth­while to share his views with you.

Bar­ton Biggs entered the invest­ment indus­try in 1961 and in 1973 joined Mor­gan Stan­ley, where he served as chief global strate­gist from 1985 until his retire­ment in 2003. He was named 10 times to the All-America research team and was voted Wall Street’s top global strate­gist each year from 1996 to 2000. Among his claims to fame:

·       He pre­dicted the bull mar­ket that began in 1982 and warned investors about Japan­ese stocks prior to their col­lapse in 1989.

·       In an inter­view in July of 1999, he iden­ti­fied a bub­ble in the US mar­ket and advised investors to sell tech stocks,

·       He cor­rectly called the bot­tom in US stocks in March 2009

Biggs wrote exten­sively on how investors can pros­per in volatile mar­kets. Three of his themes are espe­cially rel­e­vant today:

·       Why own­ing stocks is essen­tial for most investors

·       The chal­lenges of invest­ing ratio­nally in an irra­tional world

·       The psy­cho­log­i­cal makeup of suc­cess­ful investors

Why own­ing stocks is essential

One insight from Biggs relates to why almost all investors need to own equi­ties at some point in their invest­ing lives:

“The his­tory of the world is one of progress and as a con­gen­i­tal opti­mist, I believe in equi­ties. Fun­da­men­tally, in the long run you want to be an owner, not a lender”

Biggs also dis­cussed the trap of mak­ing short-term safety your only invest­ment con­sid­er­a­tion  and sac­ri­fic­ing higher returns for lower volatility:

“War­ren Buf­fett put it best when he said he would always pick an invest­ment strat­egy that over five years would give him a 12% com­pounded annual return, but that was volatile over one that promised a sta­ble 8% return annually.”

Ratio­nal invest­ing in an irra­tional world

Biggs also wrote widely on the chal­lenges of being caught up in the emo­tions of the mar­ket and also the ten­dency to root our invest­ment out­look in what hap­pened in the imme­di­ate past, rather in than what’s hap­pen­ing today and what will hap­pen tomorrow.

This is no dif­fer­ent than mil­i­tary offi­cers who attempt to pre­pare for the next war by apply­ing the lessons from the last one, with­out rec­og­niz­ing that the con­text is entirely dif­fer­ent. Biggs’ com­ment helps explain pecu­liar­i­ties such as mas­sive inflows into gov­ern­ment bonds dur­ing a period of all-time low rates, lead­ing to the vir­tual cer­tainty of cap­i­tal losses when inter­est rates rise:

“As investors, we always have to be aware of our innate and very human ten­dency to be fight­ing the last war. We for­get that Mr. Mar­ket is an inge­nious sadist and that he delights in tor­tur­ing us in dif­fer­ent ways …. Mr. Mar­ket is a manic depres­sive with huge mood swings and you should bet against him, not with him, par­tic­u­larly when he is raving.”

Biggs went on to refer to a com­ment by War­ren Buf­fett about invest­ing – that it is like being in busi­ness with a part­ner who has a bi-polar disorder:

“When your part­ner (with a bi-polar per­son­al­ity) is deeply dis­tressed, depressed and in a dark mood and  offers to sell his share of the busi­ness at a huge dis­count, you should buy it. When he is ebul­lient and opti­mistic and wants to buy your share from you at an exor­bi­tant pre­mium, you should oblige him. As usual, Buf­fett makes it sound eas­ier than it is because mea­sur­ing the level of inten­sity of the mood swings of your bi-polar part­ner is far from an exact science.”

The psy­cho­log­i­cal makeup of suc­cess­ful investors

As a result of the strong emo­tions at play, many money man­agers find it hard to stick to their strate­gies. Here’s what Biggs had to say about the impor­tance of immu­niz­ing your­self from the psy­cho­log­i­cal effects of the swings of the market:

 “The invest­ment process is only half the bat­tle. The other weighty com­po­nent is strug­gling with your­self and immu­niz­ing your­self from the psy­cho­log­i­cal effects of the swings of the mar­ket, career risk, the pres­sure of bench­marks, com­pe­ti­tion and the lone­li­ness of the long dis­tance runner.”

And Biggs offered one final piece of advice about know­ing your­self and your foibles which will par­tic­u­larly res­onate for those of you who remem­ber the tech boom in the late 1990s – while this advice is ori­ented to invest­ment pro­fes­sion­als, it applies to indi­vid­ual investors as well:

“At the extreme moments of fear and greed, the power of the daily price momen­tum and the        mood and pas­sions of “the crowd” are tremen­dously impor­tant psy­cho­log­i­cal influ­ences on you. It takes a strong, self-confident, emo­tion­ally mature per­son to stand firm against dis­dain, mock­ery and repu­di­a­tion when the mar­ket itself seems to be absolutely con­firm­ing that you are both mad and wrong.”

What this means for your portfolio

In my email at the end of last quar­ter, I out­lined some guid­ing prin­ci­ples in my approach to build­ing client port­fo­lios, five of which I repeat here.  Should you be inter­ested in doing so, I’d be pleased to dis­cuss these guide­lines at our next meeting.

1.Tak­ing the right level of risk

My start­ing point with clients is to iden­tify the rate of return they need in order to achieve their retire­ment goals and then to con­struct a port­fo­lio based on that return objec­tive. My goal is to take the right level of risk for each client – enough that we can be fairly con­fi­dent that over time you’ll achieve your objec­tives, with­out tak­ing more risk than is necessary.

In fact, it’s my view that one of the biggest mis­takes is to focus on how much risk investors want to take (which in mar­kets we’ve seen of late is as lit­tle as pos­si­ble) rather than the more impor­tant and fun­da­men­tal ques­tion of how much risk investors need to take in order to hit their long-term goals. Tak­ing exces­sive risk increases the psy­cho­log­i­cal stresses that Biggs describes, but tak­ing insuf­fi­cient risk, while com­fort­able in the short term, is a sure route to a long– run fail­ure to achieve your objectives.

2.     A buffer for retired clients

All that being said, for retired clients, I believe in main­tain­ing secure, liq­uid funds to cover three years of expenses. Hav­ing that buffer means that we reduce the risk of hav­ing to sell hold­ings at depressed lev­els; this also lessens the stress and anx­i­ety that Biggs alluded to.

3.     Adher­ing to your plan

Regard­less of what hap­pens to mar­kets in the short term, bar­ring a sig­nif­i­cant change in your cir­cum­stances, we should stick to the invest­ment para­me­ters we’ve agreed to.

Bar­ton Biggs pointed out that this is eas­ier said than done. Some of you may recall my advice in early 2009, as we faced what appeared to be an end-of-the-world sce­nario and some stocks hit lows they hadn’t seen in 20 years. At that time, I urged clients to main­tain a core level of equity exposure.

Given strong stock per­for­mance in the first quar­ter, some clients asked about increas­ing equity weight­ing above the max­i­mum bound­ary in their port­fo­lio guide­lines. And then in May, in the face of sig­nif­i­cant declines, I got ques­tions about sell­ing stocks that would have taken equity weights below the min­i­mum range (in a cou­ple of cases ‚from the same clients.)

In both instances, I strongly rec­om­mended against mak­ing changes. While I am always happy to dis­cuss adjust­ing port­fo­lios on a case-by-case basis, I advise against devi­at­ing from the range that we estab­lished going into 2012 unless there has been a sig­nif­i­cant change in per­sonal circumstances.

In light of stock val­u­a­tions and the risk in bonds, for some clients ear­lier this year we increased equity weights to the upper end of their range. Given strong stock per­for­mance in the last quar­ter, for some clients at the top of their range last spring we recently rebal­anced hold­ings to bring the equity weight back down within port­fo­lio guidelines.

Of course mar­ket rever­sals from cur­rent lev­els are always pos­si­ble; how­ever, tak­ing a long-term view, at cur­rent lev­els there is a strong case for stocks over bonds and I con­tinue to believe that clients will pros­per from tak­ing Bar­ton Biggs’ advice to be an owner rather than a lender.

4.Diver­si­fy­ing portfolios

When build­ing equity port­fo­lios, I’ve always advo­cated strong diver­si­fi­ca­tion out­side Canada. This helped my clients through most of the 1990s, then hurt them in the decade after 2000, then helped them again in the past cou­ple of years.

Going for­ward, I have no idea whether the Cana­dian mar­ket will do bet­ter or worse than global mar­kets, but  I do know that we rep­re­sent less than 5% of invest­ing oppor­tu­ni­ties around the world. In addi­tion, because of our resource focus Canada’s mar­ket will tend to be more volatile over time than the U.S. or Europe.

5.     Focus on cash flow

The final prin­ci­ple relates to the role of cash flow from invest­ments. In an uncer­tain envi­ron­ment for imme­di­ate eco­nomic growth and equity returns, I con­tinue to place pri­or­ity on the cash yield from invest­ments; partly hav­ing a steady cash flow reduces the psy­cho­log­i­cal ten­sions described by Biggs.

In my view, the returns on some REITs, invest­ment grade cor­po­rate bonds, the bet­ter rated high yield bonds and div­i­dend stocks in selec­tive sec­tors con­tinue to make these more attrac­tive than the alter­na­tives.  We do have to be increas­ingly selec­tive, how­ever, as some stocks that pay steady div­i­dends now look expen­sive by his­tor­i­cal stan­dards and appear to have stretched val­u­a­tions – this is because investor appetite for yield had bid up prices of those div­i­dend pay­ing stocks.

Should you have ques­tions about any­thing in this note or about any other issue, please feel free to give me or one of the mem­bers of my team a call.

And as always, thank you for the oppor­tu­nity to serve as your finan­cial advisor.

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The Behaviour That Erodes Client Confidence

Tuesday, May 22nd, 2012

As part of a recent round of research with investors, a highly suc­cess­ful busi­ness owner dis­cussed his finan­cial advi­sor. On bal­ance, he’s happy with the job his advi­sor is doing, with the excep­tion of one small thing.

Here’s how the con­ver­sa­tion started:

“I’ve got the bulk of my sav­ings with a bro­ker that I’ve worked with for sev­eral years, and I’m gen­er­ally happy with the job he does,” was the open­ing com­ment. “He’s very con­ser­v­a­tive which I like, because it keeps my own aggres­sive instincts in check. As a result, when mar­kets cratered a few years ago, I didn’t get hit nearly as hard as the guys I golf with.”

Then I asked about the con­tact from his advi­sor, and he was happy there as well:

“My bro­ker touches base about once a month and is really quick to return my mes­sages. When we sit down to dis­cuss my port­fo­lio, he’s well pre­pared and has spe­cific sug­ges­tions; so the meet­ings are a good use of my time. And if I ask to meet at my office, he’s always will­ing to come to me rather than expect­ing me to go to him all the time.”

Then he paused and went on:

“There is one thing, though, that does bother me. Some­times when I’m speak­ing to my advi­sor on the phone, I get the sense that I don’t have his full atten­tion. As a result, I’ve had to repeat myself or he asks the same ques­tion more than once. It’s as if his mind is wan­der­ing, or he’s doing some­thing else while we’re talk­ing. And I do recall once or twice hear­ing some click­ing in the back­ground, as if he was typ­ing on his com­puter while we were talking.”

I asked this investor to tell me more about this:

“I don’t want to make a big­ger deal out of this than it is, but it’s really begun to bug me. My time is valu­able, and if we’re going to talk I want his com­plete focus. It’s got­ten to the point that recently I asked if he was set up on Skype so we could talk face to face. It turns out that his firm doesn’t allow Skype, but he did say that he would be happy to sched­ule a call from his home first thing in the morn­ing or at the end of the day.”

“It’s funny: recently my bro­ker asked me if it might be pos­si­ble to get an intro­duc­tion to my golf group and I said I’d see what I could do. What I didn’t say is that my big hes­i­ta­tion is being embar­rassed if one of my bud­dies has the same expe­ri­ence that I’m hav­ing. Given every­thing else my bro­ker does right, I can live with this, but I’m not sure oth­ers would feel the same way.”

Your two pri­or­i­ties on phone calls:

Let’s be clear here: The investor may be absolutely wrong about this, and it’s pos­si­ble that he has his advisor’s 100% atten­tion when they’re talk­ing on the phone. Whether that’s the case or not, he doesn’t FEEL that he has his advisor’s full atten­tion, and that‘s cre­ated a problem.

There are two mes­sages from this con­ver­sa­tion: First, in any inter­ac­tion with clients, we have to give them our full atten­tion. On long phone calls, that can be chal­leng­ing. One solu­tion is to make notes, cir­cling key points that you want to respond to.

And sec­ond, we need to ensure that clients feel they’re get­ting all of our atten­tion, by acknowl­edg­ing what they’re say­ing. Long peri­ods of silence don’t com­mu­ni­cate that we’re lis­ten­ing. On longer calls, you may want to recap client com­ments at key points: “Just to be com­pletely clear on my part, here’s what I’ve heard you say.”

Los­ing 10 points in your IQ:

For many of us, the key mes­sage from this con­ver­sa­tion is that we need to stop delud­ing our­selves about our abil­ity to do two things at once. I’ve seen advi­sors “lis­ten­ing” to con­fer­ence calls while work­ing on their com­puter, and I know that either the call or the work they’re doing (or both) are suffering.

In May, Prince­ton psy­chol­ogy pro­fes­sor and Nobel Prize win­ner, Daniel Kah­ne­man spoke to the CFA Insti­tute annual meet­ing in Chicago. He made the point that research shows we can effec­tively multi– task in a very lim­ited set of cir­cum­stances. If we’re doing some­thing that requires lit­tle con­scious atten­tion; for exam­ple dri­ving down a high­way, we can also carry on a mean­ing­ful con­ver­sa­tion with a pas­sen­ger. Because we’re dri­ving on auto-pilot, we’re able to divert our atten­tion to another activity.

That changes when we have to focus. As soon as the dri­ving requires con­scious thought, for exam­ple mak­ing a left hand turn into traf­fic, both dri­vers and pas­sen­gers instinc­tively stop talk­ing, because both know that the dri­ver shouldn’t be distracted.

The same prin­ci­ple applies to every­thing you do dur­ing the day. Any impor­tant activ­ity needs your 100% attention.

Still not con­vinced? A recent arti­cle on multi-tasking pointed to research show­ing that try­ing to do two things at once causes a 10 point drop in IQ, and reduces pro­duc­tiv­ity by as much as 40%. That 10 point drop in IQ is equiv­a­lent to los­ing a full night sleep, or twice the impact of smok­ing marijuana.

Read the arti­cle excerpt below and then resolve that start­ing today, on any impor­tant issue you will give that issue your full and undi­vided atten­tion; before it endan­gers client rela­tion­ships or costs you a referral.

Delud­ing your­self on multi-tasking:

“The pio­neer of this research is Pro­fes­sor Earl Miller, a neu­ro­sci­en­tist at MIT. He scanned vol­un­teers’ heads while they per­formed dif­fer­ent tasks and found that when there is a group of visual stim­u­lants in front of you, only one or two things tend to acti­vate your brain, indi­cat­ing we’re really only focus­ing on one or two items. In other words, our brains have to skit­ter to and fro inef­fi­ciently between tasks. But the real prob­lem occurs when we try to con­cen­trate on the two tasks we are deal­ing with, because this then causes an over­load of the brain’s pro­cess­ing capac­ity. This is par­tic­u­larly true when we try to per­form sim­i­lar tasks at the same time; such as writ­ing an email and talk­ing on the phone, as they com­pete to use the same part of the brain.

As a result, your brain sim­ply slows down. Even just think­ing about multi-tasking can cause this log-jam, as Glenn Wil­son, a psy­chi­a­trist at the Uni­ver­sity of Lon­don, reported a few years ago. He found that just being in a sit­u­a­tion where you are able to text and email, per­haps sit­ting at your desk, can knock a whole ten points from your IQ. This is sim­i­lar to the head-fog caused by los­ing a night’s sleep.

This is why Pro­fes­sor Miller, for one, is highly wary of the mul­ti­task­ing lifestyle.

“Peo­ple can’t do it very well, and when they say they can, they’re delud­ing them­selves,” he says. “The brain is very good at delud­ing itself.”

Not only does multi-tasking affect our men­tal clar­ity, switch­ing between tasks also makes us less effi­cient. An Amer­i­can study reported in the Jour­nal Of Exper­i­men­tal Psy­chol­ogy found that it took stu­dents far longer to solve com­pli­cated math prob­lems when they had to switch to other tasks; in fact, they were up to 40 per cent slower. And stud­ies in the US show that stu­dents who do home­work while watch­ing TV get con­sis­tently lower grades.

In the words of UCLA psy­chol­ogy pro­fes­sor Rus­sell Pol­drack:
“There is a cost to the way that our soci­ety is chang­ing. Humans are not built to work this way. We’re really built to focus.”

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Your Clients Don’t Like “Fee-Based”

Wednesday, April 18th, 2012

by Stephen Wershing

Advi­sors who don’t seek client feed­back don’t know what their clients want, they know what the advi­sor thinks they should want.

We all know that fidu­ciary is bet­ter than bro­ker, and so nat­u­rally our clients would give us refer­rals because we are fee-based and not commission-based, right? Of course. And that’s why it’s a great idea to attract clients by talk­ing about how we charge fees.

Well, that makes a lot of sense to most of us because we tend to talk about our mar­ket­ing with other peo­ple in the indus­try and not with our clients and prospec­tive clients. As it turns out, clients don’t like fees and they don’t like to be reminded of those fees. So, when Sul­li­van and North­star sur­veyed investors on their reac­tions to dif­fer­ent words we use in our mar­ket­ing, for the 2012 update in their “Rebuild­ing Investor Trust” series, they found that 64% of respon­dents had a neg­a­tive reac­tion to the phrase “fee-based.”

Since fidu­ciary is clearly bet­ter for clients, you might also be sur­prised to learn that in a sur­vey done last year by Cerulli Asso­ciates, about 47% of 7800 house­holds sur­veyed pre­ferred pay­ing com­mis­sions com­pared with 27% that would rather pay a fee based on assets.

Of course, if you had asked your client advi­sory board to eval­u­ate your mar­ket­ing you prob­a­bly would have heard about this already. Who bet­ter than your best clients to help you under­stand the most impor­tant mes­sages to com­mu­ni­cate in your mar­ket­ing? This is the group with the clear­est idea of what is most valu­able about what you do, and their lan­guage for describ­ing it prob­a­bly dif­fers from yours. It is pos­si­ble that your clients con­sider the fact that you are “fee-based” to be one of the more impor­tant things that dis­tin­guish you from other advi­sors, but I sus­pect they will talk more about what you do for them rather than how they pay you.

One of the biggest mis­takes we make in mar­ket­ing our prac­tices is to dream up what we will pro­mote and what we will empha­size with­out input of the peo­ple we are hop­ing to attract. Engage your clients in an ongo­ing con­ver­sa­tion about your value, and you will find you have a much clearer idea of what to say to attract more clients like them. And you can work together to develop what they can say to other peo­ple to get you refer­rals.

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Hard Lessons from a Lost Account

Wednesday, February 15th, 2012

Every cou­ple of weeks for the past year and a half, I’ve taken an evening or a week­end morn­ing to talk to investors — dis­cussing their mood and  chat­ting about what they’re think­ing and doing.

A cou­ple of weeks ago I talked to an investor who had recently switched advi­sors — and who  pro­vided an exam­ple of  the stress that investors expe­ri­ence when they’re not sure whether their advi­sor is really on top of their finan­cial affairs.

“I’d been work­ing with this advi­sor for a few years” he said “and I liked him well enough. He’s actu­ally a really nice guy.

But late last year I real­ized that I was los­ing sleep because I wasn’t sure whether he was really on top of my sit­u­a­tion.“

I asked this investor what had led to the deci­sion to change advisors.

“Two things really” he answered.

“First, my advi­sor had put together a finan­cial plan about three years ago.

In light of every­thing that’s hap­pened, about a year ago I asked him whether the plan needed to be updated. His answer was that the plan had a long term focus and that what we’d been through was just a blip and that I didn’t need to worry.

Given that I kept read­ing about how the finan­cial sys­tem was melt­ing down, I didn’t entirely buy that — and got more and more con­cerned that my advi­sor wasn’t really tak­ing my account seriously.”

Then he went on.

“The other thing that con­cerned me was that aside from get­ting a call from his assis­tant to book a meet­ing once a year, I had to take all the ini­tia­tive to stay in touch.

When­ever I called him, he always got back to me right away — he was really good on that.

But I only heard from him when I called. I was just con­cerned that I wasn’t impor­tant enough for my advi­sor to really care about — and that my half a mil­lion dol­lars was sec­ondary to his other big­ger clients.”

Like many peo­ple who switch, this investor didn’t rel­ish the prospect of break­ing the news  — and the new advi­sor told him he’d get in touch with his pre­vi­ous advisor’s office and take care of all the paper­work entailed to switch his account over.

Inevitably, the investor got an imme­di­ate call from his old advisor.

“I was really sur­prised to get a request to trans­fer your account” was how the con­ver­sa­tion began.

“I know that the mar­kets have been tough but I thought that we had talked about how your account has really bounced back and in fact done well under the cir­cum­stances. Based on our last con­ver­sa­tion, I thought you were actu­ally rea­son­ably happy.  ”

This investor explained that it was noth­ing per­sonal and that his move was not pri­mar­ily because of the per­for­mance of his portfolio.

He went on to men­tion that one of the rea­sons for his move was the con­cern that his plan hadn’t been brought up to date.

“That was actu­ally on my list to talk to you about the next time we met” was the response from the old advisor.

“I didn’t real­ize that this was that big a  con­cern — if you’d told me I would have been happy to do this for you.”

There are a cou­ple of impor­tant lessons from this expe­ri­ence — costly for the advi­sor who lost the half a mil­lion dol­lar account, but avail­able free of charge to every­one else.

The first les­son is to lis­ten for hid­den mean­ing when talk­ing to clients and to never dis­miss any con­cern or appre­hen­sion, no mat­ter how small it might seem. Chances are that if the advi­sor had acted when his client first ques­tioned whether his plan con­tin­ued to reflect the mar­ket real­ity at the time, he would still have that account.

The sec­ond les­son relates to the stress that many clients expe­ri­ence when they feel they have to ini­ti­ate all the con­tact with their advisor.

I’ve writ­ten in the past about the dif­fer­ence between a con­ver­sa­tion that a client ini­ti­ates on a topic such as TFSAs or RESPs for grand­chil­dren and that same con­ver­sa­tion if the advi­sor picks up the phone to make the call first.

It can be exactly the same con­ver­sa­tion, but if it hap­pens at the client’s ini­tia­tive, the advi­sor gets dra­mat­i­cally less credit — peo­ple won­der whether that con­ver­sa­tion would have hap­pened if they hadn’t picked up the phone and called.

I recently talked to an advi­sor who last spring began set­ting aside half an hour a day to pick up the phone and check in with clients who he hadn’t spo­ken to for a while. He told me he was aston­ished at the pos­i­tive response — and the relief many clients seemed to feel just know­ing that he was on top of their situation.

In fact, this advi­sor com­mented that the most pro­duc­tive 30 min­utes was when he didn’t actu­ally reach any clients and sim­ply left mes­sages, say­ing some­thing like: “It’s Joe Smith. I’m just call­ing to check to be sure everything’s okay and in case you have any ques­tions you’d like to talk about. If there’s any­thing you want to dis­cuss, give me a call at the office — oth­er­wise, I look for­ward to sit­ting down when we meet in a cou­ple of months for our reg­u­lar review.”

Along sim­i­lar lines, a cou­ple of years back, I inter­viewed an extremely suc­cess­ful busi­ness owner who talked about what he looked for from his pro­fes­sional advisors.

“I assume that most peo­ple are basi­cally com­pe­tent and know what they’re doing” he said.

“What I look for are peo­ple who are proac­tive and are always think­ing about my sit­u­a­tion so that I don’t have to” he said. “That’s what I look for in my accoun­tant, that’s what I look for in my lawyer — and that’s what I look for in my finan­cial advisor.”

Not every client artic­u­lates this as clearly as this busi­ness owner. But those words cap­ture the essence of what many clients look for — the con­fi­dence that their advi­sor is on top of their sit­u­a­tion so they don’t have to be.

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A Critical Conversation To Have With Clients

Wednesday, November 16th, 2011

Like it or not, we live in a skep­ti­cal world.

As a result, clients worry about things that would have been non-issues in the past.

So if for exam­ple you’re with an inde­pen­dent firm, given all the media cov­er­age to swindlers like Bernie Mad­off and Earl Jones, some clients fret about whether their money is safe.

And in light of the neg­a­tive pub­lic­ity for the finan­cial indus­try over the last while, some clients are con­cerned about whether their finan­cial advi­sors’ com­pen­sa­tion is always aligned with their interests.

The hard real­ity is that most clients won’t bring these con­cerns up … but just because some­one doesn’t raise ques­tions about how you’re paid doesn’t mean there aren’t issues lurk­ing in the background.

Client con­cerns about compensation

Canada’s leader in track­ing investor atti­tudes towards the advi­sors and firms they deal with is Van­cou­ver based Cor­po­rate Insights. Over the past num­ber of years, they’ve inter­viewed over 50,000 investors who work with some of Canada’s largest invest­ment firms.

Cor­po­rate Insights ask to key ques­tions related to compensation:

First are investors clear on how they are charged?

58% of investors answer yes to this ques­tion — which means about 4 in 10 aren’t clear on this.

And sec­ond, would investors like an update or clar­i­fi­ca­tion on fees and charges to their account?

Here, a full 65% of clients say yes.

One other inter­est­ing find­ing from Cor­po­rate Insights: Hav­ing this con­ver­sa­tion is asso­ci­ated with a higher share of client assets.

Rais­ing the topic of fees

The chal­lenge is how to intro­duce this topic with­out being defen­sive or with­out cre­at­ing an issue where none exists.

One pos­si­bil­ity is to say some­thing along the lines of:

“I recently had a con­ver­sa­tion with a client who wasn’t entirely clear on all the fees and charges to his account.

I know we’re all busy so this may not be a con­cern to you … but if you’d like to spend a few min­utes on this when we next meet, I’m happy to talk about this or any other sub­ject you’d like to discuss.

Is there any­thing else you’d like to put on the agenda for our next meeting?”

Now pause and wait for your client to answer …

They may well say there are no other issues to talk about … or may in fact say they’d like to talk about fees or some other issues.

Regard­less of the response, you’ve made it easy for clients to bring a topic to the sur­face that may have been caus­ing them some concern.

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Warren Buffett’s Strategy for Effective Client Meetings

Wednesday, September 14th, 2011

Last week I spoke to an investor who got a call from his advisor’s assis­tant about sched­ul­ing a time to review his portfolio.

“I had the same reac­tion as when I get a call from my dentist’s office” said this investor, whose account was worth over $1 mil­lion at the end of 2010. “I rec­og­nize it’s impor­tant and some­thing that I have to do, but also know it’s not likely to be pleas­ant, so put it off as long as I can.”

For many clients, the regret­table real­ity is that meet­ing with their advi­sor is no longer an uplift­ing expe­ri­ence. Instead of antic­i­pat­ing meet­ings with enthu­si­asm, they look to meet­ings with fore­bod­ing. Instead of walk­ing away opti­mistic about pos­si­bil­i­ties, they leave bur­dened down by limitations

This sit­u­a­tion is unhealthy and unsus­tain­able for both clients and for advi­sors. Here are three steps to make client meet­ings a more pos­i­tive expe­ri­ence, includ­ing an idea bor­rowed from War­ren Buffett.

Step one: Be upbeat

For many advi­sors, the chal­lenge of cre­at­ing pos­i­tive client meet­ings starts with being pos­i­tive your­self. Unless you’re upbeat, there’s no chance that your clients will be.

Mar­kets like we’ve seen of late can obvi­ously make this a chal­lenge, but that doesn’t make this less of a pri­or­ity. Being pos­i­tive doesn’t mean that you’re obliv­i­ous to the chal­lenges we’re fac­ing — clients are look­ing for real­is­tic opti­mism, not some­one with a “don’t worry be happy” view of the world.

In Jan­u­ary 2009, I wrote about 12 ways to stay pos­i­tive. Some sam­ple strategies:

- Start by rec­og­niz­ing how impor­tant this is; being pos­i­tive is the nec­es­sary first step to effec­tive inter­ac­tions with clients

- Exer­cise at the start of the day to give you a boost; even a short brisk walk can help

- Find ways to fight fatigue and renew energy dur­ing the day; get some fresh air at lunch, and through­out the day take energy boost­ing snacks like fruit

- Take short breaks; sched­ule a short walk out­side between client meetings

- Be alert to signs that your energy level is drop­ping; before mak­ing a call or going into a meet­ing, take 30 sec­onds to focus on lift­ing your mood

- Seek out pos­i­tive col­leagues who give you energy, avoid neg­a­tive ones who suck it away

Step two: Look past the bad news

It’s hard to main­tain a pos­i­tive out­look when you’re drown­ing in a sea of neg­a­tive headlines.

When meet­ing with clients, start by acknowl­edg­ing the real chal­lenges faced by global economies.

Don’t let the gloom wear you and your client down. Intro­duce some off­set­ting good news. For exam­ple, point to three or four qual­ity com­pa­nies whose prices have been beaten down and shift the focus of the con­ver­sa­tion to the value in rec­og­nized mar­ket lead­ers like Shop­pers Drug Mart, TD Bank or Telus in Canada and McDon­alds, Nes­tle or Wal-Mart out­side Canada.

Step three: Focus on what you can control

War­ren Buf­fett is a name who inspires con­fi­dence among aver­age investors; look at what hap­pened to Bank of America’s share price after his invest­ment was announced. When he dis­cusses the per­for­mance of Berk­shire Hath­away in his annual report and his investor meet­ing each spring, he never men­tions the share price, focus­ing instead on its book value. In essence, he changes the score­card by which his per­for­mance is mea­sured, shift­ing from share price to some­thing he has more con­trol over.

Advi­sors should try to do the same. You obvi­ously have to talk about what’s hap­pened to client port­fo­lios, but need to go beyond that to talk about things which you can influ­ence. For exam­ple, you can set a goal of a 3% annual cash return from your client’s port­fo­lio, bet­ter than what they’ll get on GICs, and as part of your con­ver­sa­tion, talk about their cash flow in the recent period ver­sus that goal.

Or you can talk about the monthly income that clients will receive in retire­ment from all sources of income, based on today’s port­fo­lio and some con­ser­v­a­tive assump­tions on future per­for­mance and com­pare it to the base case needs in their finan­cial plan. Of course, the mar­ket decline means that their pro­jected monthly income will be down com­pared to what it would have been at the start of the year, but depend­ing on how much of a buffer they had in Jan­u­ary, their pro­jected income may still be above their base needs.

If there is a short­fall, chances are that it will be less than clients fear. At least you can have an open con­ver­sa­tion about the options to close the gap, remind­ing clients that if future per­for­mance is bet­ter than the assump­tions, these may not be needed. Again, your goal is to focus on things you can control.

One final note; I’ve writ­ten in the past about the research show­ing that the most pos­i­tive impact from vaca­tions doesn’t come from the expe­ri­ence itself or the pos­i­tive mem­o­ries after­wards, but rather the process of look­ing for­ward to them. The impli­ca­tion is clear; in addi­tion to peri­odic longer vaca­tions to recharge our bat­ter­ies, we should have lots of shorter, more fre­quent hol­i­days, say a four-day week­end away once a quarter.

As part of your strat­egy to stay pos­i­tive, sched­ule these short hol­i­days — and encour­age your clients to do the same. That way, at the end of your meet­ing, you’ll be able to briefly com­pare notes with your client not only on recent trips, but also those that are com­ing up.

And for any­one inter­ested, here’s a link to that 2009 arti­cle on ten tips to stay pos­i­tive http://​www​.cli​entin​sights​.ca/​a​r​t​i​c​l​e​/​t​e​n​-​t​i​p​s​-​f​o​r​-​m​o​t​i​v​a​t​i​o​n​-​i​n​-​2​009

Last week I spoke to an investor who got a call from his advisor’s assis­tant about sched­ul­ing a time to review his portfolio.

“I had the same reac­tion as when I get a call from my dentist’s office” said this investor, whose account was worth over $1 mil­lion at the end of 2010. “I rec­og­nize it’s impor­tant and some­thing that I have to do, but also know it’s not likely to be pleas­ant — so put it off as long as I can.”

For many clients, the regret­table real­ity is that meet­ing with their advi­sor is no longer an uplift­ing expe­ri­ence. Instead of antic­i­pat­ing meet­ings with enthu­si­asm, they look to meet­ings with fore­bod­ing. Instead of walk­ing away opti­mistic about pos­si­bil­i­ties, they leave bur­dened down by limitations

This sit­u­a­tion is unhealthy and unsus­tain­able for both clients and for advi­sors. Here are three steps to make client meet­ings a more pos­i­tive expe­ri­ence, includ­ing an idea bor­rowed from War­ren Buffett.

Step one: Be upbeat

For many advi­sors, the chal­lenge of cre­at­ing pos­i­tive client meet­ings starts with being pos­i­tive your­self. Unless you’re upbeat, there’s no chance that your clients will be.

Mar­kets like we’ve seen of late can obvi­ously make this a chal­lenge — but that doesn’t make this less of a pri­or­ity. Being pos­i­tive doesn’t mean that you’re obliv­i­ous to the chal­lenges we’re fac­ing — clients are look­ing for real­is­tic opti­mism, not some­one with a “don’t worry be happy” view of the world.

In Jan­u­ary 2009, I wrote about 12 ways to stay pos­i­tive. Some sam­ple strategies:

- Start by rec­og­niz­ing how impor­tant this is — being pos­i­tive is the nec­es­sary first step to effec­tive inter­ac­tions with clients

- Exer­cise at the start of the day to give you a boost — even a short brisk walk can help

- Find ways to fight fatigue and renew energy dur­ing the day — get some fresh air at lunch, and through­out the day take energy boost­ing snacks like fruit

- Take short breaks — sched­ule a short walk out­side between client meetings

- Be alert to signs that your energy level is drop­ping — before mak­ing a call or going into a meet­ing, take 30 sec­onds to focus on lift­ing your mood.

- Seek out pos­i­tive col­leagues who give you energy, avoid neg­a­tive ones who suck it away

Step two: Look past the bad news

It’s hard to main­tain a pos­i­tive out­look when you’re drown­ing in a sea of neg­a­tive headlines.

When meet­ing with clients, start by acknowl­edg­ing the real chal­lenges faced by global economies.

But don’t let the gloom wear you and your client down — intro­duce some off­set­ting good news. For exam­ple, point to three or four qual­ity com­pa­nies whose prices have been beaten down — and shift the focus of the con­ver­sa­tion to the value in rec­og­nized mar­ket lead­ers like Shop­pers Drug Mart, TD Bank or Telus in Canada and McDon­alds, Nes­tle or Wal­Mart out­side Canada.

Step three: Focus on what you can control

War­ren Buf­fett is a name who inspires con­fi­dence among aver­age investors — look at what hap­pened to Bank of America’s share price after his invest­ment was announced. When he dis­cusses the per­for­mance of Berk­shire Hath­away in his annual report and his investor meet­ing each spring, he never men­tions the share price, focus­ing instead on its book value. In essence, he changes the score­card by which his per­for­mance is mea­sured, shift­ing from share price to some­thing he has more con­trol over.

Advi­sors should try to do the same. You obvi­ously have to talk about what’s hap­pened to client port­fo­lios, but need to go beyond that to talk about things which you can influ­ence. For exam­ple, you can set a goal of a 3% annual cash return from your client’s port­fo­lio, bet­ter than what they’ll get on GICs — and as part of your con­ver­sa­tion, talk about their cash flow in the recent period ver­sus that goal.

Or you can talk about the monthly income that clients will receive in retire­ment from all sources of income, based on today’s port­fo­lio and some con­ser­v­a­tive assump­tions on future per­for­mance — and com­pare it to the base case needs in their finan­cial plan. Of course, the mar­ket decline means that their pro­jected monthly income will be down com­pared to what it would have been at the start of the year, but depend­ing on how much of a buffer they had in Jan­u­ary, their pro­jected income may still be above their base needs.

And if there is a short­fall, chances are that it will be less than clients fear — and at least you can have an open con­ver­sa­tion about the options to close the gap, remind­ing clients that if future per­for­mance is bet­ter than the assump­tions, these may not be needed. Again, your goal is to focus on things you can control.

One final note. I’ve writ­ten in the past about the research show­ing that the most pos­i­tive impact from vaca­tions doesn’t come from the expe­ri­ence itself or the pos­i­tive mem­o­ries after­wards, but rather the process of look­ing for­ward to them. The impli­ca­tion is clear — in addi­tion to peri­odic longer vaca­tions to recharge our bat­ter­ies, we should have lots of shorter, more fre­quent hol­i­days, say a four-day week­end away once a quarter.

As part of your strat­egy to stay pos­i­tive, sched­ule these short hol­i­days — and encour­age your clients to do the same. That way, at the end of your meet­ing, you’ll be able to briefly com­pare notes with your client not only on recent trips, but also those that are com­ing up.

And for any­one inter­ested, here’s a link to that 2009 arti­cle on ten tips to stay pos­i­tive http://​www​.cli​entin​sights​.ca/​a​r​t​i​c​l​e​/​t​e​n​-​t​i​p​s​-​f​o​r​-​m​o​t​i​v​a​t​i​o​n​-​i​n​-​2​009

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Tags: 1 Million, Brisk Walk, Challenges, Client Meetings, Dentist Office, Effective Meetings, Fatigue, Foreboding, Fresh Air, Investor, Lunch, Optimism, Possibilities, Priority, Scheduling, Short Breaks, Signs, Snacks, Three Steps, Warren Buffett
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Are Your Client Meetings Like Going to the Dentist?

Thursday, September 8th, 2011

Last week I spoke to an investor who got a call from his advisor’s assis­tant about sched­ul­ing a time to review his portfolio.

“I had the same reac­tion as when I get a call from my dentist’s office” said this investor, whose account was worth over $1 mil­lion at the end of 2010. “I rec­og­nize it’s impor­tant and some­thing that I have to do, but also know it’s not likely to be pleas­ant — so put it off as long as I can.”

For many clients, the regret­table real­ity is that meet­ing with their advi­sor is no longer an uplift­ing expe­ri­ence. Instead of antic­i­pat­ing meet­ings with enthu­si­asm, they look to meet­ings with fore­bod­ing. Instead of walk­ing away opti­mistic about pos­si­bil­i­ties, they leave bur­dened down by limitations

This sit­u­a­tion is unhealthy and unsus­tain­able for both clients and for advi­sors. Here are three steps to make client meet­ings a more pos­i­tive expe­ri­ence, so that they’re not seen as akin to a visit to the dentist.

Step one: Be upbeat

For many advi­sors, the chal­lenge of cre­at­ing pos­i­tive client meet­ings starts with being pos­i­tive your­self. Unless you’re upbeat, there’s no chance that your clients will be.

Mar­kets like we’ve seen of late can obvi­ously make this a chal­lenge — but that doesn’t make this less of a pri­or­ity. Being pos­i­tive doesn’t mean that you’re obliv­i­ous to the chal­lenges we’re fac­ing — clients are look­ing for real­is­tic opti­mism, not some­one with a “don’t worry be happy” view of the world.

In Jan­u­ary 2009, I wrote about 12 ways to stay pos­i­tive. Some sam­ple strategies:

- Start by rec­og­niz­ing how impor­tant this is — being pos­i­tive is the nec­es­sary first step to effec­tive inter­ac­tions with clients

- Exer­cise at the start of the day to give you a boost — even a short brisk walk can help

- Find ways to fight fatigue and renew energy dur­ing the day — get some fresh air at lunch, and through­out the day take energy boost­ing snacks like fruit

- Take short breaks — sched­ule a short walk out­side between client meetings

- Be alert to signs that your energy level is drop­ping — before mak­ing a call or going into a meet­ing, take 30 sec­onds to focus on lift­ing your mood.

- Seek out pos­i­tive col­leagues who give you energy, avoid neg­a­tive ones who suck it away

Step two: Look past the bad news

It’s hard to main­tain a pos­i­tive out­look when you’re drown­ing in a sea of neg­a­tive headlines.

When meet­ing with clients, start by acknowl­edg­ing the real chal­lenges faced by global economies.

But don’t let the gloom wear you and your client down — intro­duce some off­set­ting good news. For exam­ple, point to three or four qual­ity com­pa­nies whose prices have been beaten down — and shift the focus of the con­ver­sa­tion to the value in rec­og­nized mar­ket lead­ers like Shop­pers Drug Mart, TD Bank or Telus in Canada and McDon­alds, Nes­tle or Wal­Mart out­side Canada.

Step three: Focus on what you can control

War­ren Buf­fett is a name who inspires con­fi­dence among aver­age investors — look at what hap­pened to Bank of America’s share price after his invest­ment was announced. When he dis­cusses the per­for­mance of Berk­shire Hath­away, he never men­tions the share price — rather he focuses on its book value. In essence, he points to some­thing he can control.

Advi­sors should try to do the same. You obvi­ously have to talk about what’s hap­pened to client port­fo­lios, go beyond that to talk about things which are in your con­trol. For exam­ple, you can set a goal of a 3% annual cash return from your client’s port­fo­lio, bet­ter than what they’ll get on GICs — and as part of your con­ver­sa­tion, talk about their cash flow in the recent period ver­sus that goal.

One final note. I’ve writ­ten in the past about the research show­ing that the most pos­i­tive impact from vaca­tions doesn’t come from the expe­ri­ence itself or the pos­i­tive mem­o­ries after­wards, but rather the process of look­ing for­ward to them. The impli­ca­tion is clear — in addi­tion to peri­odic longer vaca­tions to recharge our bat­ter­ies, we should have lots of shorter, more fre­quent hol­i­days, say a four-day week­end away once a quarter.

As part of your strat­egy to stay pos­i­tive, sched­ule these short hol­i­days — and encour­age your clients to do the same. That way, at the end of your meet­ing, you’ll be able to briefly com­pare notes with your client not only on recent trips, but also those that are com­ing up.

And for any­one inter­ested, here’s a link to that 2009 arti­cle on ten tips to stay pos­i­tive http://​www​.cli​entin​sights​.ca/​a​r​t​i​c​l​e​/​t​e​n​-​t​i​p​s​-​f​o​r​-​m​o​t​i​v​a​t​i​o​n​-​i​n​-​2​009

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Tags: 1 Million, Brisk Walk, Challenges, Client Meetings, Dentist Office, Exercise, Fatigue, Foreboding, Fresh Air, Going To The Dentist, Investor, Lunch, Optimism, Portfolio, Possibilities, Priority, Short Breaks, Snacks, Three Steps, Visit To The Dentist
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Overcoming a key barrier to moving accounts

Tuesday, July 19th, 2011

Recent posts have focused on approaches to over­come the skep­ti­cism of today’s investors and ways to get in front of prospec­tive clients.

In talk­ing to advi­sors who have reached out to prospects, a com­mon objec­tion they hear to mov­ing accounts is “I don’t want to lock in losses by sell­ing my invest­ments now.” Some­times this comes up when they first talk to a prospect on the phone, on other occa­sions it arises dur­ing the ini­tial meet­ing or when the advi­sor is pre­sent­ing recommendations.

Here’s a step by step response if you hear “I don’t want to lock in losses” when talk­ing to a prospec­tive client.

Start by val­i­dat­ing the objection

When­ever a prospect raises an objec­tion, they put their guard up because they expect that objec­tion to be attacked. 

Instead, respond by val­i­dat­ing the objec­tion, say­ing some­thing like “I can absolutely relate to your con­cern. None of us likes the idea of lock­ing in losses by sell­ing when invest­ments are beaten down.”

Respond­ing in this way reduces ten­sion and demon­strates that you share the investor’s concerns.

Get the prospec­tive client talking

Your pri­mary objec­tive in any con­ver­sa­tion with a prospect is to get them talk­ing, learn­ing as much about them in the process as you can.

It’s espe­cially impor­tant that you unearth as much as you can about the con­cerns that investors have about mov­ing. It may be that sell­ing invest­ments at depressed lev­els is only one of the bar­ri­ers to mak­ing a change — and maybe not even the largest obstacle.

Try to learn more by say­ing some­thing like: “What other con­cerns do you have about the pos­si­bil­ity of mak­ing a move?”

If you can’t get a response, you could try some­thing along the lines of: “In talk­ing to other investors, one con­cern about mov­ing advi­sors relates to the paper­work entailed and the pos­si­bil­ity of tax records being mis­placed. To what extent is this some­thing that wor­ries you?”

Or if you want to be a bit more aggres­sive, you could say some­thing like: “Some investors I’ve talked to tell me that they’re not sure they’ll really be bet­ter off work­ing with some­one new. Is this some­thing that con­cerns you?”

Let prospects know they won’t be sell­ing everything

Many investors are con­cerned that a new advi­sor will pro­pose sell­ing all of their invest­ments as a mat­ter of course in order to demon­strate how smart they are (and by impli­ca­tion how ill-advised the investor was in their choice of their pre­vi­ous advi­sor or to try to invest on their own.) As part of that, often investors fear that a new advi­sor will want to sell every­thing indis­crim­i­nately, regard­less of the merit of these investments.

Deal with this up front by say­ing some­thing like “It’s unlikely that we’d be look­ing at sell­ing every­thing you own.”

If talk­ing on the phone, you could say: “When we meet, I sug­gest we take a few min­utes to talk about your objec­tives and goals as an investor and then go through your most recent state­ment so that we could talk about what the can­di­dates to be replaced might be in light of that.”

If you’re meet­ing in per­son and you’ve already had the con­ver­sa­tion about the client’s objec­tives, alter­na­tively you could say: “What I sug­gest is that I take a copy of your state­ment and that we sched­ule a time to sit down again later this week. Between now and then, I’ll spend some time going through this in detail so that I can come back with spe­cific rec­om­men­da­tions on the invest­ments it makes sense to retain and those that are can­di­dates to be replaced.”

Focus on the positives

If a prospect agrees, focus first on what you’d hang on to — and err on the side of keep­ing invest­ments rather than replac­ing them.

Next, write down a list of the invest­ments you’d sell and beside that list write down what you’d replace those invest­ments with.

Then go through each invest­ment you’d sell and talk about what you like about that invest­ment and what you don’t like. After that, talk about the invest­ments you’d rec­om­mend putting in place of those invest­ments you think the prospect should sell.

The key is to take the prospect’s focus off the pain of sell­ing invest­ments that are down and replac­ing it with the gain of the alter­na­tives you’re suggesting.

Point out tax savings

If a prospect has a sig­nif­i­cant non reg­is­tered port­fo­lio, point out that they might recoup taxes by tak­ing tax losses on invest­ments that are down. You can offer to cal­cu­late how much they would get back — we all hate taxes, this can be a hot button.

Agree to main­tain exist­ing hold­ings for a period of time

If a prospect is still hes­i­tant and a key rea­son for their unhap­pi­ness relates to poor com­mu­ni­ca­tion last year, you could say: “I under­stand your con­cern about sell­ing posi­tions that are down. If you’re open to mov­ing your port­fo­lio over, we could agree to spend the first month devel­op­ing a plan for you and spend­ing some time ensur­ing that we’re on the same wave­length. Only after that would we look at mak­ing changes.”

Mon­i­tor how your port­fo­lio would have done

Sup­pose you’ve gone through all of these steps and the prospect is still reluc­tant to make a move.

As a last resort, you could sug­gest using one of the invest­ment track­ing web­sites such as Globein­vestor to set up two port­fo­lios on that site for them — the one they own and the one you rec­om­mend. As part of that con­ver­sa­tion, agree that you’ll be touch about once a month to revisit how the two port­fo­lios are doing and to answer any ques­tions they might have.

As a result of the mar­ket events of the last year, we’ve seen a spike in the level of investor skep­ti­cism. Many investors aren’t just skep­ti­cal about their own finan­cial advi­sor and finan­cial insti­tu­tion, they’re skep­ti­cal about ALL finan­cial advi­sors and ALL finan­cial insti­tu­tions. As a result, you need an approach to respond to state­ments like “I don’t want to lock in losses” that respects the level of anx­i­ety many of today’s investors feel. 

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

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Tags: Depressed Levels, Extent, Investments, Investor, Investors, Losses, Moving, Objection, Objective, Obstacle, Occasions, Paperwork, Prospective Client, Prospective Clients, Prospects, Skepticism, Step By Step, Step Response, Tension
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Turning service problems into opportunities

Tuesday, January 18th, 2011

No mat­ter how hard we try to avoid them, it’s inevitable that on occa­sion clients will expe­ri­ence a ser­vice prob­lem — a change of address doesn’t go through, some­thing that was sup­posed to be sent slips through the cracks or a request wasn’t fol­lowed up on.

Even small mis­takes can be costly — they can cor­rode client con­fi­dence, under­mine good­will and some­times even cost you a client. A while back, I spoke to an investor who pulled his account because of a suc­ces­sion of irri­tat­ing mis­takes over an eigh­teen month period.

As a result, every advi­sor needs a two part strat­egy when it comes to ser­vice problems,

First, you need to put sys­tems in place to keep mis­takes to a minimum.

And sec­ond, you need a proac­tive process to recover from any prob­lems that do take place. In fact, research shows that as long as mis­takes are the excep­tion, speedy and effec­tive recov­ery from a prob­lem can actu­ally leave rela­tion­ships stronger than if the prob­lem hadn’t hap­pened at all.

Here’s a six step plan for effec­tive prob­lem recov­ery that can help main­tain strong rela­tion­ships even in the face of ser­vice problems.

Step One: Let clients know you want to hear about problems

Many clients are incred­i­bly frus­trated by the dif­fi­culty of get­ting small prob­lems resolved with com­panes they deal with. As a result, many have given up com­plain­ing, men­tally shrug­ging their shoul­ders and mov­ing on.

You don’t want your clients deal­ing with you through grit­ted teeth. The first thing you need to do is to clearly com­mu­ni­cate that you truly want to hear if clients ever run into a prob­lem, no mat­ter how triv­ial.

You can’t be sub­tle on this — you need to let clients know that if they ever encounter an issue, you want to know. And make it easy for clients to let you know when they run into a prob­lem, by ask­ing them to drop you or your assis­tant an email or to give you a call.

Step Two: Under­stand the issue

Clients call­ing with an issue can some­times be worked up and overly emo­tional. As a result, your first pri­or­ity is to thank them for bring­ing this to your atten­tion — and then to clearly under­stand the exact nature of the prob­lem. Ask clients call­ing in to walk you through exactly what tran­spired, tak­ing detailed notes.

Then ask if you can play back what you heard just to be sure you got it right.

Step Three: Apologize

Once you’ve heard clients out, the next step is to apol­o­gize in a way that clients under­stand you truly are sorry.

These days, you see a lot of “going through the motions” apolo­gies, apolo­gies that don’t seem heart felt or sin­cere. After a long wait at a TD bank counter one recent morn­ing while the woman I was deal­ing with went to check some­thing, she came back and turned to her screen, mum­bling “Sorry to keep you wait­ing” with­out ever look­ing at me.

Not only did I not feel apol­o­gized to, I felt dis­missed. If this woman had looked at me when she got back, engaged me for a sec­ond and a half and said “I’m ter­ri­bly sorry to keep you wait­ing, we ran into a bit of a delay,” my reac­tion would have been entirely different.

After hear­ing clients out, be sure to take a few sec­onds to ensure they under­stand you sin­cerely regret hav­ing incon­ve­nienced them.

Step Four: Lay out next steps

Next you need to spell out exactly what you’re going to do to fix the prob­lem. Once you’ve done that, ask ”

Even if you need to do some research or to get more infor­ma­tion before iden­ti­fy­ing what will hap­pen, you need to be clear on when you’ll be respond­ing with more specifics.

Step Five: Make sure the prob­lem is fixed

Whether deal­ing with tele­coms, cable com­pa­nies or air­lines, many of us have had the expe­ri­ence as cus­tomers where small mis­take fol­lows small mis­take — it’s incred­i­bly frus­trat­ing when we go through one glitch after another.

When a client encoun­ters a prob­lem, you need ensure that it’s cor­rected quickly and accu­rately — the last thing you want to do is to com­pound a mis­take by fail­ing to deliver the solu­tion you promised.  One advi­sor starts his morn­ing team meet­ing by review­ing a list of out­stand­ing ques­tions and prob­lems, to be sure that noth­ing slips through the cracks.

Step Six: Check back with the client

The final step is to cir­cle back with the client to be sure that you’ve deliv­ered the res­o­lu­tion you promised.

The best way to do this is to pick up the phone after­wards and to say “I’m just call­ing to fol­low up on the prob­lem you expe­ri­enced. I wanted to say again how sorry I am that you ran into this and also to ensure that we’re resolved this issue.”

In the per­fect world, mis­takes would never hap­pen and we wouldn’t need a prob­lem res­o­lu­tion strat­egy. In the real world, occa­sion­ally things break down and clients inevitably expe­ri­ence small glitches from time to time — when that hap­pens, you need to be proac­tive to ensure that you turn prob­lems into an oppor­tu­nity to strengthen relationships.

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Tags: Advertisement, Change Of Address, Client Confidence, Cracks, Email, Face, Goodwill, Gritted Teeth, Investor, Relationships, Shoulders, Six Step, Slips, Succession
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