Performance & Fees vs. ME

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Mar 30, 2008 12:03 am

Lately for some reason or another I've had several meetings with prospects whose only care in the world revolves simply on what my costs are and my "past performance."


It's a topic that is inevitable w/ a prospect, but being able to do business with them based on this is a hard thing to do.  I've tried diffusing these specifics b/c I believe in the end it all doesn't matter in the abscence of value. 
 
Can anyone here share any techniques or even stories that you tell in order to overcome these things?
 
CASE STUDY:
 
Here's my latest situation.  I met a guy who is a very qualified prospect who retired a year ago, his 401k is still with his old company and I talked him into considering rolling it over.  He's not a sophisticated investor, but he would absolutely benefit from what I do and is only willing to go with me if my costs are favorable.
 
I told him I don't know what the costs are yet b/c I don't know much about his goals, risk tolerance, yada yada yada.  He wouldn't tell me any of it unless he knew what the costs were. But then I turned it around and asked him what he would do if he ddin't go with me.  He said that he would manage it himself b/c higher costs would lower his overall return...Duh! (Keep in mind he is a victim of journalist who enable the do it yourself attitude)
 
How would you guys handle this situation? If you can actually give me the exact conversation that would be great
 
EX/ "Objectively I can understand why you would look at performance and fees to base your decision, but that may be one of the worse ways of deciding who to work with.   This is a big world and you may indeed find someone who is cheaper or someone to give you 1 or 2 good years of performance, but in the long run I dont' believe that will matter much anyways.  Look... my work is limited to only a finite amount of clients who I dedicate my life to.  If you work with me...apart from your family and closest friends, there is no one else in the world that will care about your financial welfare than I would.  I would say, you should work with someone who you trust."
 
"That's great you want to do this yourself, but this is a risky decision.  It's not like deciding to work on your car instead of bringing it to the mechanic.  This is you and your wife's retirement we're talking about.  Do you think that a doctor operates on himself?  Do you think a lawyer defends himself in court?  No they don't. It's too risky.  There's no reason you should do this yourself."
 
"There's so much information nowadays available on the internet, the television, and in newspaper that reinforces doing investments yourself.  But the way I look at it... theres so much more to it than that.  If you get in a car accident and just b/c you read a medical book the night before would you just operate on yourself?  If you have legal problems and b/c you watched court TV for a couple of hours would you defend yourself?"
 
You guys get the idea.  Stuff like this would be helpful.  Thanks.
 
 
 
 
Mar 30, 2008 12:48 am

I use a pilot analogy.....Something like this......I want you to think about the last time you flew on a plane.....when things were smooth you had no worries enjoying the movie and free drinks.....then you look outside and you see a storm brewing the plane starts shaking when you look out the window you see the wings flexing up and down.....just about the time when you question whether or not flying was the right choice the pilot speaks on the over com and explains that were experiencing a little turbulence and asks everyone to return to their seat and buckle up but everything is fine and we will be out of this in no time.....then while nodding my head I say.....isn't it nice to know you have a experienced pilot at the controls to take you through the storm?  After they say yes I go on with.....I want you to think of me as your pilot....when the market is doing great you wont think of me at all....but when times get rough you will be getting a call from me telling you that everything is going to be ok just fasten your seatbelt and we will be out of this in no time.


Works well for me.....

Mar 30, 2008 1:10 am

If you needed surgery, would you go to the cheapest doctor or the best doctor. (wait for answer) Costs are only an issue in the absence of value, and I provide tremendous value to my clients.  This includes understanding your goals; helping you understand the risks involved in any investment whether that be stocks, bonds, or even CD's;(will ask what risks in CDs) continual monitoring of your situation ongoing to make sure we are achieving YOUR goals;(let him know this is about him) making sure your wife is taken care of if something should happen to you; (he hasn't thought of this, if he manages his money and dies, what does his wife do) developing strategies to pass your assets on to your children when the time comes;(implying money will be left over) and giving unemotional objective advice.(he is not interested in this but you should say it)  The most important aspect of planning for your retirement is having a disciplined strategy and adhering to that strategy. (have a story about investment returns vs. investor returns or the Fidelity study of DIY investors vs. investors with an advisor) Without a plan, it does not matter how cheap your investment costs are.  Now before I can perform surgery, I need to do a check up and assess your personal situation as everyones individual needs are different.  At the end of this assessment (sp?) I will give you my recomendations to achieve your goals and we will discuss the different pricing options available to you.



I may have also asked right out of the gate what are favorable costs.

Mar 30, 2008 1:17 am

BTW, retired and money in 401k does not make a qualified prospect.  He needs to have an immediate need and it does not sound like he feels he has an immediate need.  Curious, did he approach you or you approach him.  If he approached you ignore this entire post.  Get his mind off cost on to value.

Mar 30, 2008 2:35 am

Hey thanks all of you for taking the time to write that.  It was very helpful and I'll probably use some of it when I meet him again.

 
If I can appreciate stories or analogies to understand something I believe that our clients and prospects like the visuals too.  Apart from the analytics of the biz, we basically communicate for a living and reading the actual conversations are helpful to me.  I hope they are helpful to others here as well.
 
So let's see some more coming! 
Mar 30, 2008 2:49 am
Bluetang:

BTW, retired and money in 401k does not make a qualified prospect.  He needs to have an immediate need and it does not sound like he feels he has an immediate need.  Curious, did he approach you or you approach him.  If he approached you ignore this entire post.  Get his mind off cost on to value.

 
This prospect has about $450k still in his 401k with his old company and has not rolled it over or rebalanced it in a way that suits his current stage in life.  For me personally, anyone who I meet that has over 100k in investible assets is a qualified prospect, but this may not apply to anyone else here.
 
Since I am in the infant stages in my career and at a wirehouse environment where new clients don't walk in the door (at least in mine), I approached him.  Every single client that is with me currently, I have approached.  Some of them didn't have an abundantly clear need or an exposed need.  Some did.  But you're right.  This prospect probably doesn't think he has an immediate need.  I believe he does and was looking for someone in here to help me explain to him in a way in which he will see what I see.
Mar 30, 2008 9:51 am

Most of my clients have come from me contacting them also.  This isn't the problem.  Re-reading the post, it does not sound as if he has come in, you prospected him and he said what are your costs.  Is this right?  If someone called my to sell me a Porshe, I would be interested if costs were favorable, otherwise not.  Sounds like he is messing with you, willing to accept your advice, may even know in the back of his head that he could use your help.  He just does not pay for it.  You want people who value what you do.  Otherwise this becomes a leach for client who always complains about fees.

Mar 30, 2008 1:47 pm

"Lately for some reason or another I've had several meetings with prospects whose only care in the world revolves simply on what my costs are and my "past performance.""


 
Youngun, based upon the fact this has happened in several meetings, the issue is most likely you and not your prospects.   Asking about your past performance would indicate that they are perceiving you as a money manager.   If this is the case, their questions about fees and performance make lots of sense.  Take a minute to think of how you describe what you do.  Can this be the problem?
 
Can anyone here share any techniques or even stories that you tell in order to overcome these things?
 
On rare occasion, it does happen to me.  I'll immediately stop and say something along the lines of, "Wait a second.  We need to backtrack.  Since you are asking me about my performance numbers, I've done a miserable job of helping you to understand exactly what it is that I do.   Mutual funds have performance numbers.  Money managers have performance numbers.  Financial advisors don't have performance numbers.   Every single client of mine has a different portfolio that is 100% tailored to their risk tolerance and their financial goals.   Therefore in terms of performance numbers, there really is no such thing except on the individual client level.   We can absolutely spend time talking about the specific performance numbers of anything and everything that I recommend to you."
 

"Here's my latest situation.... I talked him into considering rolling it over.  He's not a sophisticated investor, but he would absolutely benefit from what I do and is only willing to go with me if my costs are favorable....
 
I told him I don't know what the costs are yet b/c I don't know much about his goals, risk tolerance, yada yada yada."
 
How do you know that he'll benefit from what you do?  How does he know this?  What I'm driving at is you are telling him that he would benefit, yet you have no clue as to what he's trying to accomplish.   He doesn't know a single way in which rolling over the account will benefit him.  The only thing that he is thinking (probably correctly) is that it will cost him more money.    Find out what his goals and objectives are and then let him know how rolling over his 401(k) to your firm will help him accomplish those goals.  If you can do that, you have a client and the fee and performance objectives vanish.  Until you do that, is there any reason for the client to ask about anything other than fees and performance?  
 
Younggun,  sorry to beat up on you, but this looks like the problem is you and not the clients.   This is good news because you can change what you are doing, but you can't change the prospects.  
Mar 30, 2008 6:30 pm
young_gun:
Can anyone here share any techniques or even stories that you tell in order to overcome these things?
 



I take a few different approaches.  Typically it's not much of an issue because by the time fees come up they are already closed.

I suggest that you keep it simple.

I've said combinations of some of the following:
It's not what you pay, it's what you keep.

Yes, you could do it on your own.  The things that I do that have the greatest impact on your returns are not all rocket science.  If you had access to the same resources, had similar training, you spent the same amount of time involved with the market and you didn't let emotions get involved; you could achieve greater returns because you are not paying the fees.  We know that's not the case so my job is to provide you with a better NET risk adjusted return than what you would do on your own.

I know, you are questioning the fees.  You are probably wondering if I doubled my fees that I would be able to double your return.  Unfortunately that's not the case.


Even when clients are not questioning fees, I fully disclose what they are paying in internal and external fees.  I explain that when using C-shares or MLPA (Merrill's fee-based) they are paying Merrill Lynch 1%.  Of that 1% advisors are getting on average 40-45%.  Then after the government takes their share, I'm personally seeing $2.5 for every thousand dollars they have invested with me.

--WM

Mar 30, 2008 8:49 pm

I consider myself to be in that part of my career where fee discussions rarely happen anymore, along with performance numbers, simply because iI have chosen not to present or focus on them at all.  I fully disclose, but the whole fee topic rarely even comes up, at least not until the very end.  You should be able to discover the info you need, create a blueprint, and get an "agreement" from the client without ever having to discuss fees or performance.
You need to sell them on your approach and reason for doing what you do.  They need to know your job is to put them in the best place to achieve long term success, period. 
I don't buy into any of the cookie cutter metaphors.  Doctor, pilot, etc etc.  Not to bash them, I use to use something along those lines.  But the sooner you move away from them the better off you will be.  I personally know I am trying to get where anon is, and be as eloquent as well, but I am not there yet. 

Apr 2, 2008 2:38 am

Hey thanks anonymous for responding.  I appreciate your feedback.  Actually a lot of what you said is pretty helpful and I hope you don't mind that I steal some of that for a future objection.

 
But to answer your question, I didn't present myself as a money manager.  I prospected him on a random call and got him to start thinking about doing something with his retirement rather than leave it with his company.  I told him the benefits of rolling over a 401k (ie. more control over the investments so that they can be tailored to where is in life, not where he was 20 years ago when he was working.)  He agreed and told me that he was talking to a discount brokerage firm and would be open to meet me while he decides.  So that was that.  After qualifying, there I went to go see him.
 
"How do you know that he'll benefit from what you do?  How does he know this?  What I'm driving at is you are telling him that he would benefit, yet you have no clue as to what he's trying to accomplish."
 
I believe ANYONE can benefit from what I do.  Don't you?  But specifically, I don't know if he realizes this or not.  Going into the meeting I'll guess for the latter and hoping that I'll be able to show him my value.  But you're right, he didn't know how he'll benefit right away but understood the urgency to take care of this only after I talked to him.  In my meeting after several fact finding questions I found an idea of what he is trying to accomplish, but it is difficult when he hasn't defined all his goals.  So thats where I am at now.  Im going to meet him tomorrow so I'll update you on how it went.  Thanks
 
Apr 2, 2008 6:11 am

If I don't post something that can be stolen now and then, it's a waste for me to post.  I'm always glad to be of help...or sometimes force my unwanted opinions on people.

 
"I believe ANYONE can benefit from what I do.  Don't you?"
 
Yes, I believe that virtually everyone can benefit from something that I do, but they can't benefit from everything that I do.   In this case, what you do, based upon the knowledge of your prospect, is rollover 401(k)'s to IRA's.  Because you don't have a full set of facts, you were able to give him some generalities of why an IRA might be better.  However, it appears as if you don't have enough specific knowledge about him to know whether it is a good idea in his situation.
 
Let me give you a recent example from my practice.   This guy had a broker from ML and was friendly with an Eddie Jones guy and I cold walked into the business where he works.   The owner wasn't there, but I struck up a conversation with him.    
 
  It turns out that he had about $300,000 in his government TSP.    His EJ friend was aggressively trying to get him to roll the money into an IRA with him.  The prospect was sold on all of the advantages.  He was set to pull the trigger, but he didn't know whether to go with ML or EJ.
 
I kept asking questions to get more information.   The prospect was 47 and married with kids and a combined income of around $180,000.   His wife has a 401(K) from her current job that is worth over $200,000.  He has about $30,000 in a non-deductable IRA.  The cost basis is also roughly $30,000.  I went on to explain all of the great advantages of an IRA for his rollover and explained how both the ML guy and EJ guy were right that it was something to seriously consider.
 
I went on to tell him that although it was something to seriously consider, he should definitely not rollover the money now.  He did transfer his IRAs to me and he will ultimately roll over the TSP to me.  Here's my question for you, Young-gun (Please let Young-gun be the one to answer.)    What do you think that I told him that got him to decide to not do the rollover and to transfer the IRA money to me?
 
Here's a question that I don't know the answer to, and if someone could answer, it would be appreciated.  One of the general advantages of IRA's over 401(k)'s is the ability for a non-spouse beneficiary to stretch the payments over their lifetime.  Because of a Congressional screw-up, this should have also been the case in 401(k)'s.  Instead, it depends on the specific 401(k).  "Can a non-spouse beneficiary of the Federal Government's TSP plan roll over the money into an IRA and take the payments over their lifetime?"