Working with Do-It-Yourselfers

One good thing you can say about 2001 in the stock market: It convinced a lot of individual investors who hadn't already taken a big hint from the plunge of 2000 that they really needed professional help. Many investors have learned the hard way that diversification and time are important ingredients to successful investing and being able to weather a difficult market, says Don Froude, president and

One good thing you can say about 2001 in the stock market: It convinced a lot of individual investors who hadn't already taken a big hint from the plunge of 2000 that they really needed professional help. “Many investors have learned the hard way that diversification and time are important ingredients to successful investing and being able to weather a difficult market,” says Don Froude, president and CEO of Quick & Reilly.

Froude is so convinced of this trend that he is engineering a massive overhaul of the discount brokerage firm into the full-service business. Now, Froude says, the “personal financial consultant” (i.e., broker) is at the “center of the universe.”

Across the industry, firms and individual brokers and advisors are seizing the opportunity. Before Froude jumped on the full-service bandwagon, for example, rival Charles Schwab & Co. had expanded into services normally associated with the big wirehouses. John Moore, president of John Moore and Associates, an advisory firm in Albuquerque, N.M., says he's on the lookout for one-time online investors who are ready to come back to the fold.

Moore divides them into two camps: true do-it-yourselfers and dabblers. The latter, “who wanted something that played well at the cocktail party,” are the most likely prospects, he says. “The dabblers have quit dabbling. They have come back and are looking for advice.”

Moore has found that some of his clients want to have a teacher, and not just an advisor; they still want to do some of it themselves. “People that continue to roll their own, they really enjoy it, but they want some training,” he says. “They want to hire us as a coach to learn.” But when it comes to more complex issues, such as retirement planning or estate planning, clients are happy to leave matters in his hands.

Another approach is to let the client have his way, but to make clear for the compliance police just who is making what decision. Peter Casey, managing director of New Century Planning, a fee-based advisory firm in New Jersey, says his firm uses a “trade accommodation letter,” which will be placed in the client's file. If a client wants to make an investment that is not part of the plan, the trade will be done, but it will be clear that it was against the advice of the firm. Casey also encourages clients to open a separate trading account, so that their freelance work won't “pollute” the numbers of the account the professional is overseeing.

The thing to remember is that, even though clients may be looking for more advice than they were when markets were surging, many are not giving up an active role in their financial lives. That's where new technology may help. “Some of the larger firms will turn the broker workstation into a collaborative device, making it easier for them to interact with their clients,” says Robert Sterling, senior analyst at Jupiter Media Metrix in New York. He says this will result in more “responsive trading” so that reps will have the ability to transmit an order screen or a solicitation to clients via e-mail or perhaps a wireless device.

Still, a broker who is focused on creating a true advisory relationship with his clients, may want to avoid even the dabblers. “I'm not trying to pick up the do-it-yourselfer,” says Craig Martin of the Family Wealth Consulting Group in San Jose. “They don't make good clients.” Martin puts investors in three buckets: The do-it-yourselfer, the confirmer and the delegator. “I have a consulting business, so I want the delegator.”

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