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How do you manage 'fear'

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Oct 19, 2006 2:53 pm

[quote=joedabrkr]

I care greatly about my clients, and have forgotten far more about how to work with real people and real money than you know.

[/quote]

What I asked was do you feel competent to argue with a client who is telling you that he wants to cash out and put his money in a CD?

My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible.  Just as you would be derilict to not listen to him when he's saying that he wants growth you are just as derlict to not listen to him when he says he wants to cash out.

It's HIS money.  Right?

Oct 19, 2006 2:55 pm

[quote=munytalks]

I got a very strange call today. A client said he thinks the market just 'isn't going to get any higher' and wanted to liquidate everything. He plans to take it all to his Credit Union to buy CD's- but not long term ones because he's not sure he wants to tie his money up for longer than a year.... he's 58. [/quote]

Is he telling you he'd like to hide out in CDs for a while because he's convinced he'll be able to buy back in in a lower market? Just curious.

I had a similar client who called me back in '94 when it looked like the GOP would take the House that he wanted to go to 100% cash in his company's retirement account because he was convinced he would be able to buy back into a market 50% cheaper inside one year. He was passionate about his politics and his theory was that Newt, et al, would run the economy (and thus, the market) into the ground. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Oct 19, 2006 2:58 pm

[quote=Soon 2 B Gone]

My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. [/quote]

Since you've never been one, it's easy for you to confuse being an advisor with being an order taker. An advisor's role is to execute the client's wishes only after you've done your best to make sure he's fully aware of the possible consequences of his actions.

Oct 19, 2006 3:07 pm

[quote=Soon 2 B Gone]

[quote=joedabrkr]

I care greatly about my clients, and have forgotten far more about how to work with real people and real money than you know.

[/quote]

What I asked was do you feel competent to argue with a client who is telling you that he wants to cash out and put his money in a CD?

My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible.  Just as you would be derilict to not listen to him when he's saying that he wants growth you are just as derlict to not listen to him when he says he wants to cash out.

It's HIS money.  Right?

[/quote]

It IS derelict to not listen to what the client says they want.  Usually, in a case like that, the client is saying "Hey I'm really concerned about the risk in the market so I want to do something about it."

Most clients/amateur investors do not understand the nuances of the market very well, and tend to look at it in a very binary fashion.  Either things are 'good' or 'bad' and the major indices are headed 'up' or 'down'.  This despite the fact that most of them do not own the indices.   They also often do not realize that even when the market does go down there are often still sectors where money can be made, not to mention alternative choices which can make money whether the market goes up or down-such as REITS, lease partnerships, and managed futures, amongst many examples.

An old fashioned dinosaur such as yourself will gleefully liquidate the clients account, collecting some big fat commissions on the way out(of course, no discount because they are leaving), and do all that under the guise of "Hey that's what the client wants.  I have to give them what they want."  That never happens, right?

An ethical advisor will sit down with the client, listen to their concerns, and then discuss the alternatives with them OBJECTIVELY.  An integral part of the discussion will be an explanation of the risks and perils involved in taking such a drastic measure-including the opportunity costs, and the risk that they could sit on the sidelines for a while only to decide to jump back in at the REAL top.  This is merely human nature, and I've seen folks do it many times.

In the end, if they still wish to move forward, then yes, it is THEIR money.  But I have an obligation to make sure they understand their options, and do my best to make certain they do not hurt themselves.
Oct 19, 2006 3:09 pm

[quote=mikebutler222][quote=Soon 2 B Gone]

My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. [/quote]

Since you've never been one, it's easy for you to confuse being an advisor with being an order taker. An advisor's role is to execute the client's wishes only after you've done your best to make sure he's fully aware of the possible consequences of his actions.

[/quote]

What makes you qualified to tell a fifty eight year old man that going to cash is the wrong idea at his age?

Why is it the wrong idea?

I'm sixty one.  Except for a few hundred thousand dollars that I use as SMA to facilitate my options trading virtually everything I own in the way of securities in cash and short term muni issues.

Why should I risk the principal at this point in my life?  Why should anybody?

If I am wrong how much "opportunity loss" did I suffer?  How much better than 5% are you going to do for me after all of the management fees, etc?

Oct 19, 2006 3:27 pm

[quote=Soon 2 B Gone][quote=mikebutler222][quote=Soon 2 B Gone]

My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. [/quote]

Since you've never been one, it's easy for you to confuse being an advisor with being an order taker. An advisor's role is to execute the client's wishes only after you've done your best to make sure he's fully aware of the possible consequences of his actions.

[/quote]

What makes you qualified to tell a fifty eight year old man that going to cash is the wrong idea at his age?

Why is it the wrong idea?

I'm sixty one.  Except for a few hundred thousand dollars that I use as SMA to facilitate my options trading virtually everything I own in the way of securities in cash and short term muni issues.

Why should I risk the principal at this point in my life?  Why should anybody?

If I am wrong how much "opportunity loss" did I suffer?  How much better than 5% are you going to do for me after all of the management fees, etc?

[/quote]

What makes YOU qualified?  The fact that you've lived 61 years on this earth?

Or the years of wisdom you gleaned sitting on NASD committees, and attending management junkets in LaJolla and Boca?

Or is it the knowledge you gained as Senior VP of Office Supplies?

Oh-and by the way-if you have the vast majority of your 'real' money in cash and short term munis, you may not be risking nominal principal, but history suggests that you ARE taking a significant risk in purchasing power.  Actuaries will tell you that either your or your spouse(poor woman must have the patience of a saint) have a better than 50% chance of living long enough to see your cost of living more than double.
Oct 19, 2006 3:39 pm

[quote=Soon 2 B Gone][quote=mikebutler222][quote=Soon 2 B Gone]

My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. [/quote]

Since you've never been one, it's easy for you to confuse being an advisor with being an order taker. An advisor's role is to execute the client's wishes only after you've done your best to make sure he's fully aware of the possible consequences of his actions.

[/quote]

What makes you qualified to tell a fifty eight year old man that going to cash is the wrong idea at his age?

Why is it the wrong idea?

I'm sixty one.  Except for a few hundred thousand dollars that I use as SMA to facilitate my options trading virtually everything I own in the way of securities in cash and short term muni issues.

Why should I risk the principal at this point in my life?  Why should anybody?

If I am wrong how much "opportunity loss" did I suffer?  How much better than 5% are you going to do for me after all of the management fees, etc?

[/quote]

I don't think anyone says it is wrong for a 58 year old man who is nervous to go to cash.  It may be the most appropriate move of all. 

I think we are saying that he needs to be fully informed of the consequences of either staying put or cashing out and that there may be other options besides those two choices.

Personally, I think at your age short term munis are a very good idea.  If I won the lottery tomorrow and had 5 million to invest, 4 of it would be in a portfolio of munis not subject to AMT and money market instruments.  The rest I would invest somewhat cautiously....after having a blow out party to celebrate of course.

I'm sure a lot of my caution comes from the fact that I, like the 58 year old man in our example, can see the horizon and the end of the road a bit clearer than some of our younger colleagues.

Oct 19, 2006 3:54 pm

I can't believe I am doing this...but I am leaning towards Put/NASD/Soon.

Let me put this into context:  I don't disagree with Babs, Mike, or Joe.

I simply chose early in my career to STOP SELLING my opinions, my view of the market (or anyone else's), or historical information.

I believe firmly that people must take responsibility for their own actions (including what they do with their own money).  So my style truly is a consultative process.  I almost NEVER make just one recommendation; more often it is two or three choices.

I simply listen to a clients needs, explain various vehicles that they could use to try to accomplish those needs, and the aspects of each.  THEY then tell me what basic vehicle they want, then I show them various types.  THEY tell me what to sell to them.  It makes it easy.

My close ratio is very high, and I really believe it is because the entire time I am simply giving them what they ask for.  If after our conversation they say they feel comfortable with a CD, I don't try to sell them a FHLB bond or a VA.  They chose, not me.

If one of my clients came to me and said they wanted out of the market, I would simply remind them the costs associated (if any, and I do say remind because I always let them know on the front end, again, because I want them to take responsibility for themselves), tell them the alternatives that meet what they are currently trying to do, and wish them well.

You know, in doing business this way, I have very very few unhappy clients ever.  I may lose a few sales this way, but it is worth it to me.

Oct 19, 2006 4:19 pm

[quote=BankFC]

I can’t believe I am doing this…but I am leaning towards Put/NASD/Soon.

Let me put this into context:  I don't disagree with Babs, Mike, or Joe.

I simply chose early in my career to STOP SELLING my opinions, my view of the market (or anyone else's), or historical information.

I believe firmly that people must take responsibility for their own actions (including what they do with their own money).  So my style truly is a consultative process.  I almost NEVER make just one recommendation; more often it is two or three choices.

I simply listen to a clients needs, explain various vehicles that they could use to try to accomplish those needs, and the aspects of each.  THEY then tell me what basic vehicle they want, then I show them various types.  THEY tell me what to sell to them.  It makes it easy.

My close ratio is very high, and I really believe it is because the entire time I am simply giving them what they ask for.  If after our conversation they say they feel comfortable with a CD, I don't try to sell them a FHLB bond or a VA.  They chose, not me.

If one of my clients came to me and said they wanted out of the market, I would simply remind them the costs associated (if any, and I do say remind because I always let them know on the front end, again, because I want them to take responsibility for themselves), tell them the alternatives that meet what they are currently trying to do, and wish them well.

You know, in doing business this way, I have very very few unhappy clients ever.  I may lose a few sales this way, but it is worth it to me.

[/quote]

So if you dropped by your doctor's office and told him you wanted to pick up some Lipitor, would you expect him to whip out his pad and write the scrip for you?  Maybe first remind you of the costs involved and the fact that you must ultimately take responsibility for your own actions, and then hand you the paper?
Oct 19, 2006 5:54 pm

[quote=BankFC]

I simply listen to a clients needs, explain various vehicles that they could use to try to accomplish those needs, and the aspects of each.  THEY then tell me what basic vehicle they want, then I show them various types.  THEY tell me what to sell to them.  It makes it easy.

[/quote]

I doubt there's many here that don't already do that. OTOH, that has nothing to do with simply taking the order of a client who wants to go to cash simply over fear of the current market. He's counting on you to limit his self-inflicted wounds.

Oct 19, 2006 6:04 pm

Muny's client reminds me of some moms in a playgroup I attend, who are a part of a radical new movement choosing NOT to vaccinate their children - based on the theory that the possible risks of vaccinations far outweigh the benefits.

These women stubbornly turn away and believe they can limit their children's exposure to infectious diseases, via home schooling, homeopathic remedies and knowledge. They've bought in to media and anti-vaccination hype, and against the advice of their pediatricians, made a decision they feel is best for their families.

I hope Muny has his client sign acknowledgment forms, I don't think he will be able to change his mind.

Oct 19, 2006 6:05 pm

<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 

 

 

[quote=Soon 2 B Gone][quote=mikebutler222][quote=Soon 2 B Gone]

My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. [/quote]

Since you've never been one, it's easy for you to confuse being an advisor with being an order taker. An advisor's role is to execute the client's wishes only after you've done your best to make sure he's fully aware of the possible consequences of his actions.

[/quote]

What makes you qualified to tell a fifty eight year old man that going to cash is the wrong idea at his age? [/quote]

You mean aside from knowing something about the folly of market timing and understanding just what sort of growth rate he needs to (presumably) maintain his lifestyle of plan for the one to come after retirement?

[quote=Soon 2 B Gone]

Why is it the wrong idea? [/quote]

See above about market timing and required growth.

[quote=Soon 2 B Gone][

I'm sixty one.  Except for a few hundred thousand dollars that I use as SMA to facilitate my options trading virtually everything I own in the way of securities in cash and short term muni issues. [/quote]

Your own ineptness at managing money (and misuse of the above terms) doesn’t concern me, Mr the-Dow-will-see-6000=before-12000. Presumably, at some asset level and with low enough consumption rates, you may be doing the right sort of thing, but I have grave doubts. That’s why H. Ross Perot can afford to have 100% of his money in short term munis, since he’s gathered so much and spends (percentage wise) so little. You, otoh, are more likely acted out of some misplaced perception that you have some important insight about market movements.

[quote=Soon 2 B Gone]

Why should I risk the principal at this point in my life?  Why should anybody?

If I am wrong how much "opportunity loss" did I suffer?  [/quote]

Without details of the client’s asset base and usage rates we can’t answer for certain. The short answer is the pros suck at market timing and individual investors make the pros look like geniuses.

[quote=Soon 2 B Gone]

How much better than 5% are you going to do for me after all of the management fees, etc?

[/quote]

 

You sure have a twisted concept of the average client’s net returns. Perhaps you’re thinking back to the damage you did to clients before you washed out as an FA.

Oct 19, 2006 6:06 pm

These are all some great responses. There have been many issues and possiblities presented in here- my heartfelt thanks to all who responded.

My own view- and the reason I posted this thread in the first place is- the client has some fears which, to me,  seem unusual. I think it is important to listen to a client when they vocalize fears.

In this case, though, I think little may be done to "limit his self-inflicted wounds".

He is 58- but already retired as he is disabled.  He is a Viet-Nam veteran and suffered effects of that. He came to me three years ago from Morgan Stanley. He had a portfolio of over 75 tech stocks- most he wanted to purchase himself-and did not listen when his MS Advisor told him to sell, diversify, etc.

I did take 1/3 of his portfolio and put it into a Metlife A share annuity- it has made just over 10% per year AND has a death benefit higher than market value. He wants to surrender that too- and pay the taxes- to go to cash.

I wish there was something I could do, but even keeping his money here in CD's may not work. I think he has a history of not listening but reacts on fear.

Again - I am impressed with all the different views in here. THANKS!

Oct 19, 2006 6:09 pm

[quote=munytalks]

I did take 1/3 of his portfolio and put it into a Metlife A share annuity- it has made just over 10% per year AND has a death benefit higher than market value. He wants to surrender that too- and pay the taxes- to go to cash.

[/quote]

I'm not banging on your idea of an annuity, but just which one can grow at over 10% a year and have a death benefit that's even higher?

Oct 19, 2006 6:12 pm

Metlife- with the Enhanced Earnings Preservation Benefit rider. It adds 40% of market gain to the death benefit.

Oct 19, 2006 6:27 pm

I think everyone here has a point. Our job is to advise. Yet, it's the client's money. It gets very sticky when we talk a client out of something they want to do and it turns out they would have been better off going their own way. I try not predict, that's stickest of all.

When advising clients, the client's comfort level is of prime consideration. For example, if a client is risk adverse and needs stocks to make his/her/their goal if I can't make them comfortable with the risk management techniques we're employing, well, then stocks are a no go. If an income client needs to max out income and needs more income than an bonds/inflation hedge of stocks will allow, again the facts of life are explained to the client and stocks get kicked off the bus. It's the client's money.

How much risk is always a good question.

Mike, speaking of political agendas, nice way to slip yours into a post about dealing with nervous clients. If you want we can turn the clock back about 5 years from your 1994 example and talk about all the clients who got hammered by the S&L crisis. Your buddies own that. And to be clear I'm not being political here. The RTC, to cover its ass starting seizing solvent banks. I got caught in that. So not political, it's personal. Real personal!

Oct 19, 2006 6:53 pm

If the guy things it’s a good idea to cash out a VA in order to ‘go to cash’ well then he’s just a stubborn fool.  Ultimately, if he does it, he deserves whatever he gets.

Sometimes you just can’t stand between someone and their learning experiences.

Oct 19, 2006 7:01 pm

[quote=joedabrkr]

Oh-and by the way-if you have the vast
majority of your ‘real’ money in cash and short term munis, you may not
be risking nominal principal, but history suggests that you ARE taking
a significant risk in purchasing power.  Actuaries will tell you
that either your or your spouse(poor woman must have the patience of a
saint) have a better than 50% chance of living long enough to see your
cost of living more than double.
[/quote]





What if one’s municipal bond income is four or five times their annual
expenditures?  Is there still a problem being invested in
municipals?

Oct 19, 2006 7:08 pm

[quote=joedabrkr]

Oh-and by the way-if you have the vast majority of your 'real' money in cash and short term munis, you may not be risking nominal principal, but history suggests that you ARE taking a significant risk in purchasing power.  Actuaries will tell you that either your or your spouse(poor woman must have the patience of a saint) have a better than 50% chance of living long enough to see your cost of living more than double.
[/quote]

If one invests in short term maturies how are they taking "significant risk" in purchasing power?

Oct 19, 2006 7:15 pm

[quote=joedabrkr]If the guy things it's a good idea to cash out a VA in order to 'go to cash' well then he's just a stubborn fool.  Ultimately, if he does it, he deserves whatever he gets.

Sometimes you just can't stand between someone and their learning experiences.
[/quote]

What is the lesson that this client will learn?