Client expectations - what %?

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Jan 14, 2008 5:54 pm
I'm curious what the rest of you are using for setting expectations for clients.  I used to show hypo's and fact sheets, and usually that shows a 10% return.  However, I've been doing alot more conceptual selling the last couple of years, and not really getting to details about specific investments until the sale is essentially made.  I generally tell people that the account could be up or down 20% in the next year, but over time should average 7-8%.  I don't really get into what the particular funds or subaccounts have done, although I do give a fact sheet and perspectus, so the info is there if they ask or if they look at the info I give them.
 
The reason I am asking is because I just lost a prospect to the local EDJ Rep, who told them that they could expect up to 7-10% growth, so they decided to go with him.  WTF?  I called them and politely pointed out that I am just being cautious, in fact the investment in question has had a 12% return over the last 5 years.  Nevertheless, they are still going with him. 
 
I know that setting higher expectations is going to bite him in the a** someday, and this isn't even that big of an account, but the fact that he is showing them something with a worse track record than I am but is getting the client by setting their expectations higher than I did just is pissing me off right now.  He has been around long enough to know better too. 
 
This little rant is my way to get over it and move on.  I'm just curious what kind of expectations other advisors are setting for their clients.
 
 
Jan 14, 2008 6:30 pm

first reaction is that if they are simply performance driven investors, good riddance.  eventually you will not be the highest performing advisor they meet and will move on then.  stick with the conceptual selling, it is much more profitable long term. 

i would potentially say the performance might not be the real reason they left, but i do not know the situation very well.
Jan 14, 2008 10:24 pm

I usually say 7-9% (of course this depends on the allocation model I use). For forecasting, I use 8% pre-retirement and 6 or 7% post-retirement. I don't think 7-9% is unreasonable. To me, 7-8% over the long-term for a good quality portfolio seems a bit low (which is only a shade lower than what I use). But I use real defensive portfolios (American, FT) that hold up real well in down markets, so even through the real bad markets, we are going to do far better than what I tell people.



As Horse said, some clients are purely numbers driven. These type make me nervous. They somehow believe (despite what you tell them) that you will get EXACTLY the return you tell them, no more, no less. So if you get 5% in a down year for the market, you're screwed. Then when the market shoots up 20%, and you do 17%, they find a way to talk to other brokers that are doing 30% returns, and TELLING prospects that. Then they BUY IT. These are NOT good clients.



I do not like any client that wants to "compare" returns. I will not tell anyone what they will get. I just tell them that "long term, a well diversified portfolio like this will generally average 7-9% while taking less risk than the overall market or benchmarks".

Jan 14, 2008 11:25 pm

OK. LMFAO. exponential economic growth is impossible.  If you do not know that, you better study macro economics. The edge of the big cliff is much closer than you think.  We have big problems here. We may not have business in this industry in the next 2-5 years.  YES..we are that close.  PEACE

Jan 15, 2008 10:38 am

Hey, I heard there was this big asteroid coming next year too.  That's going to be followed by the polar ice caps melting causing worldwide flooding.  Al Gore told me that himself.   So, I stopped using hairspray.  That should stop it.  Iran has nukes.  China is going to take over the world.  Hillary is going to be the next president.  The dollar is going to zero.  Oil is going to $400/barrel.  Any other theories you want to discuss?

Jan 15, 2008 10:56 am

Spiff's comming out!

Jan 15, 2008 11:04 am

Spiffman..you are not well informed.... do you understand the exponential function in economics? Is it sustainable? Don't worry about global warming, Don't worry about nukes. don't worry about China..they are doomed too. Whomever becomes the next president..wait, who would want to become president in the light of everything...Yes, the dollar is going to zero (as the roman aureus did 1700 years ago), with or without $400 oil..but exponential energy costs (which raises everything else) will speed up the process. Last summer, I sold most of my book to an optimist, CNBC sunshine blown up their ass broker...space spiff, you need to do the same.


Have you heard of Richard Rainwater?  Probably not.
Jan 15, 2008 11:23 am

Not to be too flip about it, but get ahold of an American Funds ICA Guide.  Yeah, I know it's a marketing piece.  But if you look at the reasons not to invest section (I haven't looked at it in a while, but I know you have all seen it at some point), there is a very compelling case to put your money in CD's, if not gold bars buried in the backyard, almost all the time. 

 
I know, this time is different.  Just like tech stocks in 1999, just like the Cuban missle crisis, just like the first Gulf war, which was supposed to be another Vietnam, except with WMD's being used by the other side.  Just like Pearl Harbor.  Just like the Russians beating us into space. 
 
This time is always different.
Jan 15, 2008 11:27 am

By the way, when you say performance may not be the real reason they left, I know that there are other reasons as well.  They have an existing relationship with EDJ, and I am trying to get them as a new client.  This was a long shot anyway, but the fact that performance was at least one of the reasons annoyed me, especially since what I showed them had better diversification and better performance both.

Jan 15, 2008 11:36 am

edJ,

Not to critisize you, but brokers that sell using the ICA chart.....look this thing's done 12.7% for the last 73 years, how can you go wrong..is what this thread started with.  I think the EJones saleman used something like that to get the business..while you were being more (but not nearly enough)  convervative.  Brokers like that are going to kill their clients. "past performance does not guarantee future results"  Speaking to Rainwater a couple of years ago, I though he was a bit premature about the oil crisis. But he hit the credit, dollar, finance crisis right on the head.  Then add the frosting on the cake of energy and commodities shortages (only getting worse). Dire Consenquences.
Jan 15, 2008 1:16 pm

So, MC Lovin, what you are telling us is "This time is different."  Thanks for the insight.

Jan 15, 2008 1:23 pm

Yes.  So different and unprecidented that that an exodus is occurring from all levels of your beloved industry.

Jan 15, 2008 2:09 pm
MC Lovin:

Yes.  So different and unprecidented that that an exodus is occurring from all levels of your beloved industry.



Yawn ...

Jan 15, 2008 2:53 pm

Yawn?  Please wake up.  Anyone with a triple digit IQ can smell the coffee and have some real concerns. Most people don’t believe something can happen until it already has. That’s not stupidity or weakness, that’s just human nature.

 
1929 a walk in the park
Jan 15, 2008 4:44 pm

I've seen this movie before. When the guy that shines my shoes & the biggest producer in the branch both start dumping stuff it's time to start buying...

Jan 15, 2008 5:29 pm

I would assume that all of us have some concerns.  Short term concerns.  This year could get ugly.  But we're not willing to jump on the "It's the end of the world as we know it" bandwagon.  After all, REM told us that way back in 1987.  Great song, bad advice.  So, forgive us if we don't stick our heads in the sand.   

Jan 15, 2008 5:30 pm
MC Lovin:

edJ,

Not to critisize you, but brokers that sell using the ICA chart.....look this thing's done 12.7% for the last 73 years, how can you go wrong..is what this thread started with.  I think the EJones saleman used something like that to get the business..while you were being more (but not nearly enough)  convervative.  Brokers like that are going to kill their clients. "past performance does not guarantee future results"  Speaking to Rainwater a couple of years ago, I though he was a bit premature about the oil crisis. But he hit the credit, dollar, finance crisis right on the head.  Then add the frosting on the cake of energy and commodities shortages (only getting worse). Dire Consenquences.
 
Let's say worst case scenario....Great Depression?  1987?   2000-2002?    Um, I think we recovered from those pretty well.
 
But this time it's different.  It's a NEW PARADIGM!
Jan 15, 2008 5:48 pm

Space, short term concern? Ugly year?  I hope so too, but how can we recover from all this!

 
Broker24, worse case senario, your 3 mentioned are mere blips in the big picture...look back further. Think harder.

By AD369 the Empire was beginning to crumble for the following reasons:


The Government was running out of money.


The people had to pay very high taxes - up to a third of their money.


Water and Food supplies could not meet demand.


Where are we today? Much like the Romans, but worse off...much worse.  All the problems are at a much larger exponet today.  Their money was gold, ours is pure fiat debt. Our economy is entrenched and dependent on OIL, a commodity in which the demand has outstripped supply.
 
Jan 15, 2008 8:07 pm

I've heard all this before in the 1950's, 1960's, 1970's, 1980's, 1990's, and the new century we live in--all of you need to help your client's balance their portfolio for the current market conditions--not the chicken little syndrome! 

 


True story: in August 1987 I went on a cruise on the USS Enterprise and I when I left I had $42,000 in a growth and income mutual fund---I came back from the cruise in March 1988 and my fund was worth $45,000 and some change--I didn't change anything yet the market crashed in Oct 1987... our job is to control expectation of our clients--not predict WWIII.
Jan 15, 2008 8:14 pm

Well, getting back to the original point of the thread (as I see it), I recommend getting the book entitled, "The Wedge". To get a sense of what the book is about, imagine you want to date a girl who is already involved with someone else. What would you do to break-up that relationship? Getting in the girl's face, telling her how great you are and what a loser her boyfriend is, won't work. It must be more subtle. The girl must think that SHE decided to break-up and date you.


The same thing applies to business relationships. Rather than tell the prospect that you're great and that the other broker is an idiot, you might ask the prospect: "So, when Joe Broker reviewed your investment policy statement, clearly showed the expenses you'd incur, explained asset allocation and how often he'd/she'd rebalance your account, and established a quarterly review schedule for the next twelve months, how was that result?"
 
Of course, don't pack all this in one question! But break it up into a series of questions. After your prospect has negatively answered your questions three or four times, they will starting doubting the wisdom of their decision to go with the other broker. This is just a sliver of what the book is about. There's a lot more, in the book, that I found very valuable.
 
Dollar for dollar, it's been the best investment I've ever made in a book on sales. And although the book is written for insurance agents, it's principles are very transferable to our line of work.
 
Just sayin'....