What do investors want anyway? I think back to the 1980’s when I heard Zig Ziglar say, “People don’t want a quarter-inch drill bit. They want a quarter inch hole.” You might say, “People don’t want the money, they want what the money provides.” What does money provide? Security, comfort, the ability to help others, status, etc. Money means different things to different people. In any event, ask open-ended questions, listen carefully, and the client will tell you everything you need to know to advise them.

One of the most satisfying aspects of this business occurs when a client shows appreciation for the job I have done. I can’t think of anything that makes this more possible than when I present a comprehensive financial plan to a client. Financial planning not only answers their main questions, it answers questions that had never occurred to them. In short, it is a comprehensive, soup-to-nuts, all-inclusive look at their entire situation. That’s what they are seeking.

Last week I presented a plan to a client who was referred to me by a local estate planning attorney. I am extremely thankful that he thought enough of me to make to make the referral. Moreover, if I do a good job, the attorney will be much more likely to refer others.

To summarize, under promise and over deliver, put the client’s interests ahead of your own, hone your craft, and you’ll never lack for business.

Thanks for reading and have a great week!

• Why does the portfolio include so many funds from the same fund family?
• Why are there no alternative investments included?

Over the years, I have found a common, underlying answer to this: The investment rep was always a broker.

Now this is not to insinuate that all brokers do this. Nor is it meant to imply that a brokers cannot do a good job for their clients. I say this so that you, the reader, will not have to infer anything here. I will state that as a matter of experience, I have seen this same theme played so many times before.

Having worked for a large brokerage firm in the past, I can say with some credibility that part of the reason an investment “professional” might include a majority of funds from one family in a single portfolio is that they are trying to reach a commission breakpoint. That works with a larger account, but what if it is not?

Perhaps they’ve received some “soft-dollar” support and are trying to “repay” the ‘generous’ wholesaler with their business (don’t get mad…that does happen). If the broker works for a company with proprietary products, then you may not need to look any further for the answer.

Whatever the case, is there ever a situation when it is in the client’s best interest to place 60%, 70%, or even 80% or more of a client’s money with one fund family? Maybe if the account is not large enough to buy several funds en route to diversification. That brings me back to my original point. Here was an account, large enough to hold at least 10 funds, but had 88% of the total account value invested with one fund family. Moreover, the clients are in their early 80s and were 65% invested in equities. Imprudent? Overexposure? It is in my book.

Here’s a moral to consider: You never find all the best horses in one stable.

As advisors, we should be completely agnostic in our selection of funds or ETFs. We should also not receive any soft-dollar support from wholesalers. Neither should politicians. However, since politicians are the lawmakers, I think business will continue as always and investment advisors will continue to flourish.

Thanks for reading!

After I ordered the new computer, I took my old one to a local technician who informed me that I had several viruses and something was attacking my root directory. I dropped it off on a Friday afternoon and got it back in good working order the following morning. The cost? Only $75. Even though it is now working fine, it’s still time to upgrade. I also went from Windows XP to Windows 7. From what I’ve been told, Windows 7 is a much better operating system once you get the hang of it. I now have to load my programs and files onto the new computer.

Another change is also coming. Soon, I will eliminate ACT! and subscribe to Salesforce.com, which is a much more robust CRM. Oh, I should mention that all of this was occurring while the markets were beginning to  get nervous, we were in the process of selling our home and buying a new one, and last, but not least, I was preparing a financial plan for two new clients.

Needless to say, the old stress meter was peaking.

I’m now happy to report that we are finally moved, most of my programs are loaded, and the financial plans are progressing well. I do fear the markets are still nervous,  though. I now have to transfer all of my documents, spreadsheets, etc., to my new computer but they are backed up with Carbonite so this should be relatively easy. At least that’s what I’m told. We shall see.

Thanks for reading!

I would venture to say that the majority of practitioners share this paradigm. I would also contend that there are several who do not and use the “plan” as a tool to increase product sales. The difference depends on the focus of the individual advisor. Either you are sales driven or advice driven. You cannot act in one fashion and profess another, although many do.

If you are count yourself as a member of the advice group, then the issue of capacity is worth some discussion. How many new comprehensive financial plans can one advisor generate in a year? Remember, the more comprehensive the plan is, the lower the number will be. I had this very discussion with colleagues when I worked at JP Morgan. The general consensus – although there were outliers—was somewhere between 20 and 24 per year. It’s important to set realistic expectations.

Another relevant question is this. How often will you update a client’s plan? It took me several years to settle this issue, but a few years ago I decided that updating annually is best. I inform clients of this at the beginning of the relationship so they will know what to expect.

Here’s the challenge. As the number of planning clients increase, so do the number of plan updates. After a few years it can become problematic.  For example, let’s assume you gain 10 new planning clients each year over the next three years. In year two you have 10 updates and 10 new plans to prepare. In year three, you have 20 plans to update and 10 new plans to prepare. Each year the task becomes increasingly difficult. I am beginning to sense this so I’m trying to streamline the process of gathering updated information. Basically, a financial plan requires the following data: assets and liabilities, income and expenses, and goals and motivations. I am presently working on a ‘pre-populated’ spreadsheet to which the client will reply with the necessary corrections.

I’ll keep you posted.

On the asset management front, I am still very concerned about the state of our financial system. After perching precariously on the edge of the financial abyss, we are now attempting to climb out. To do this, our economic engines must start firing on all cylinders. This means the consumer must begin spending, but with so many unemployed Americans that will be difficult.

In essence, we are asking the remaining workforce to spend enough to compensate for those who cannot. To complicate matters, credit is tight. Even though lenders make their best loans during a time of crisis, fewer loans are being generated and so the climb will be a slow one. Moreover, government pressure on banks to make sub-optimal loans was a contributing factor which led to this dilemma. More pressure will not help, but in fact make matters worse. The growth of the past three decades was built on credit. Now it’s time to deleverage and that will take time.

Therefore, keeping risky assets at a minimum and diversifying will be one key. Trying to capture a trend here and there can help as well. It’s also a good idea to read about the history of financial markets to gain an understanding of past events.

As I have mentioned before, Gravity Investments’ asset management tool will be a tremendous help in preserving client assets while simultaneously achieving some level of growth. This tool, like any other, requires thoughtful input. Unlike any other tool, though, it provides some very unique analysis. And as an advisor, that’s where it all begins.

Thanks for reading!

While no one knows for sure, I do believe some analysts are better than others. Part of the process involves processing comments through the filter of biases and conflicts of interest. In other words, does the commentator have a horse in the game? Would they benefit if their views came to fruition? For instance, stock managers are seldom pessimistic and bond managers may be candidates for Prozac. Making sense of it all it the difficult part. My approach involves two steps: listen and observe. I listen to what they say and make a note of it. Then, I watch to see if their predictions come true.

CEOs are typically optimistic. They have to be. They lead by inspiration. From their employees to investors to consumers, CEOs must choose their words carefully. They must “send” the right message. This gives them the best opportunity for corporate success and has the added benefit of job security. When times are challenging (another term for bad) they will find the rainbow and talk about it.

Politicians are interested in one thing and one thing only…..GETTING VOTES. Everything they say must be filtered through this prism. I’m reading an interesting book entitled, “The Ascent of Money,” by Niall Ferguson and published by Penguin Books. In it, he quotes Germany’s Otto von Bismarck who said of socialism, “Whoever embraces this idea will come to power.” This is due to the fact that the poor outnumber the rich. More social programs require more bureaucracy which leads to bigger government and greater power.

Over time, I have developed a short list of people who I respect and follow. In no certain order they are: Bill Gross, Nouriel Roubini, John Hussman, Bob Prechter, and Mohamed El-Erian.

After reading their views, I must merge them with my own and draw conclusions. Then, with the prism of what I believe to be a plausible future, I position client portfolios to capitalize on this. I am not always right and neither are they, but it is better than the alternative of buy and hold, which incidentally only works well in a continually rising market.

Who do you follow and how do you approach asset management? Love to hear from you.

Thanks for reading!

This particular client is a pleasure to work with, but admitted they are unfamiliar with the markets. The moral of this story could read; “Exclude short-term periods,” or, “Make sure the client understands that short-term results are not the focus.”

Sometimes it may not be wise to show them to a client, especially if that particular client assigns undue importance to them.

After all, we live in a society where instant gratification is the norm, fed by television’s sound bites. In the future I will be more cautious about showing short-term results. It’s also important to educate the client on prudent expectations. After some discussion the client understood and now everything is fine.

A New Frontier (At least for me)
Have you ever wanted to host a Webinar, but lacked the knowledge to do so? This was the case with me. However, thanks to Matt with Advisor Portal, I am now equipped to host Webinars. Advisor Portal provides a number of services including Web site design, online document storage, and the aforementioned Webinars.

To conduct a webinar, I simply direct the client to my site, have them log in to their portal, and click the Webinar button. Then, they select the wWbinar link and the rest is academic.

There are a few good reasons to conduct client Webinars. For clients who live farther away the answer is obvious. For other clients, especially the busy, working professional, this saves time. Think about it. Clients can break for lunch, have a sandwich, and attend your presentation in the comfort of their office. This is an efficiency booster. I wouldn’t necessarily use this in lieu of face-to-face meetings, but for some clients, this will prove very beneficial. In addition, you can give presentations to prospective clients as well.

The New Tool
In recent postings, I’ve mentioned the new portfolio management tool from Gravity Investments. While I scale the learning curve each week I am finding it to be one of the most intriguing programs I’ve seen in my 25-year history in the business. I’ll write more on this later.

Is the Bear Growling Again?
With the 10-Year Treasury yielding less than 3.0%, a large drop in consumer sentiment, persistent high unemployment, and a Fed projecting a slow economy for Q3 and Q4, it doesn’t seem as though the financial markets will perform very well in the near term. We’ll talk more about this later.

Thanks for reading!

Several years ago, a friend of mine told me how excited he was about a new client who was looking to invest several hundred thousand dollars. What did the advisor recommend? An annuity. Why? He was brimming over about the prospect of a fat commission check. Assuming an 80% payout, an investment of $300,000, and a 6% commission, his take would have been in the neighborhood of $14,400! That’s a lot of money! That’s also far too common.

Very recently, a new client of mine relayed the story of a bank advisor who sold her elderly father a rather large annuity. She was not happy about it, but by the time she found out, it was too late to change it.

Let’s be clear. An advisor working on commission is not an advisor at all. He is a salesperson. I realize this may ruffle some feathers, but consider this. Would any business owner in their right mind hire a new employee and pay them a year’s worth of wages upfront? Of course not! They would pay them as they earn it, which is the essence of an advisor working on a fee basis.

Why does this type of behavior exist? It’s really very simple. This is a business where you can earn a physician’s wage with only a fraction of the educational commitment. Moreover, if the commissioned salesperson works for a bank or brokerage firm as an employee, the expectation is clear. Sell or be replaced. And who wants to be replaced? So they sell, sell, sell!

I’ve been in more sales meetings over the years than I care to count. In each meeting, the focus was on selling. That’s why they call them sales meetings!

Because of the egregious sales practices of some brokers, Congress is trying to place them under the same fiduciary umbrella as investment advisors. Will this work? My optimism meter runs low. As long as we have structures where the production of revenue is the primary focus, enforcing a fiduciary standard is unrealistic. This is because the interests of the client would have to come first which is diametrically opposite to a commissioned-based world. Even if this new standard were passed, it would be impossible to catch all of the abuses. The suitability standard is much more lenient and allows for this type of behavior.

What we need is client education. Clients need to know the difference between a broker and an investment advisor.

As long as we have large companies spending billions of dollars on fictitious ad campaigns, the public will remain confused.

So I will try and save as many clients as possible. I know many of you will do the same!

Thanks for reading!

Moreover, the rules of engagement are structured to fit those who, how shall we say it, are less than ethical. This “lowest common denominator” compliance can be extremely frustrating to the honest advisor. In fact, some of the rules might even be considered, well, ridiculous. This is why compliance is often referred to as the Department of Sales Prevention.

Perhaps you are reading this and considering a change. Perhaps you have been contemplating the independent model, but haven’t quite reached the point where you are willing to pull the trigger. If that is you, I hope this will encourage you to take the leap of faith, trust in your abilities, and join the ranks of the independent. To do this you must have a minimum base of clients, that is, unless you plan to live on beans and weenies. Let’s take a look at some basic numbers.

If you have a current book of business, remember, as an independent, you only need a small portion of your existing clientele to make a go of it. A typical payout at a large brokerage or bank may range from 20% to 50%. As an independent, you should expect to receive 85% to 100%. Using 90% as a guide, and a 1.0% average fee, each million dollars of AUM would generate $9,000 in annual income or $750 per month.

Depending on how much you require in support, independence may be easier than you think. Look at your current book, client by client, and consider which clients might be willing to follow. You may be surprised to find the number is greater than you think. Did your current clients choose to work with you because you work for ‘Company X’ or because of you? Some will prefer the brand name,’ but many will not.

Consider your future, and if becoming an independent advisor is for you, I wish you well. If I can help, please let me know.

Thanks for reading.

To elaborate, I had the pleasure of meeting Joel Bruckenstein during a dinner last February. I recall much of what Joel said, but one of his most profound comments was that we should be willing to pay for technology if it will increase our productivity. In short, if it saves us time—since time is money—we should invest. On the other hand, during the period you are building your business, special attention must be given to expenses. If you increase expenses too rapidly, you face the possibility of operating in the red.

There are basically two ways to “launch” a new venture. One is to pay for it as you go. The other is to use ‘seed’ capital and run a deficit until such time as your income exceeds expenses. Then you repay the debt. I chose the former over the latter. In other words, I wouldn’t accept a new subscription or purchase a new item until I had the either the cash flow or the capital to pay for it. That’s not necessarily the best way, but in many respects it is the safest. In any event, many of the tech tools I used in the beginning stages of my Road to Independence have, or are, being replaced as I learn about better offerings.

One such offering is from Gravity Investments. This is possibly the most exciting new tool I have seen in my 25 years in the industry. Although I have alluded to it in the past, I’d like to dispense with the mystery and discuss it.

What Gravity has done is amazing. It’s simple and elegant, yet profound. Picture it this way. You have a holographic globe with only the lines of latitude and longitude. In the very center of this globe is a dot which represents cash. Every investment you hold extends out from the center, at varying lengths and angles. Each angle represents an investments relationship with another. If all lines led to the same place, you have a non-diversified portfolio. If only one hemisphere has lines extending to it, then you are not well diversified. Gravity has created a three dimensional analysis for a portfolio. Simply amazing!

I’ll write more about this later.

Thanks for reading.