How do you manage 'fear'

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munytalks's picture
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Remember all the hand-holding we all did during 2001 and 2002?
Remember all the analogies about timing and the market?
Inflation and investing?
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.
I was very good at hand-holding during 2001 and 2002. When the market turned and my clients were making money again, things got easier. People like to make money.
I would like to hear from other advisors out there on how you manage clients' fears when things are going well.
 

Soon 2 B Gone's picture
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Easy.  Tell them earnings always go up, therefore stock prices always go up.
If he doesn't buy that ask him if he doesn't grasp the concept that if he withdraws his money he will be taking money from your pocket and that is unacceptable.
Tell him there is no thrill to owninig CDs.
Tell him that retiring with your nest egg in tact is not all that it's cranked up to be.
Finally mock him.  Start making chicken sounds and ask how long he's been a coward.

bankrep1's picture
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And when he comes to the bank with his check... Hello

My Inner Child's picture
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munytalks wrote:
Remember all the hand-holding we all did during 2001 and 2002?
Remember all the analogies about timing and the market?
Inflation and investing?
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.
I was very good at hand-holding during 2001 and 2002. When the market turned and my clients were making money again, things got easier. People like to make money.
I would like to hear from other advisors out there on how you manage clients' fears when things are going well.
 

Cut him loose. He doesn't belong in the market. Lots of people who are in the market don't belong there. If you had sold him a variable annuity, he wouldn't be freaking out.

ezmoney's picture
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amen brother. i mean about the annuity.

My Inner Child's picture
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ezmoney wrote:amen brother. i mean about the annuity.
There's just something about that peace of mind that my clients like to have. I never have to take calls from any whiners.

doberman's picture
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I would recommend approaching this situation as an "advisor".
First, assure the client that as their advisor, your primary job is to present them with all the facts about the possible implications of withdrawing from the market. An advisor would acknowledge that the client could be right and that the market could be topping-out, but your job is to consider 100+ years of market behavior versus "what-if's".
Assuming there are no other reasons for withdrawing from the market, like an unmentioned large debt obligation, job termination, etc.; an advisor would caution the client against making any rash financial decisions and present evidence that supports maintaining a position in the market.
If the client is still bearish, the next step would be to compromise and suggest moving only a portion of the portfolio to cash equivalents, while still maintaining some exposure to equities (preferably value-oriented equites). This way, the client hedges their bet either way the market might move. 
If the client still doesn't agree to stay invested in equities, be prepared to present some alternative investments; even CD's. As you well know, it's important not to let the assets leave, even if they're only in a money market account. (Make sure the credit union offers deposit insurance, some don't!) The client might even be a candidate for a variable annuity.
Whatever the outcome, the client should know that you're a source of reliable, unbiased investment information. That, although you can't predict the market, with your expertise, you can present enough information so that both of you can come to a reasonable, well thought-out decision on how to allocate their investment.
Just sayin'...

Pants's picture
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"A client said he thinks the market just 'isn't going to get any higher' and wanted to liquidate everything. "
 
What is his basis for saying this. Yes, the Dow is at an all time high. How many other all time highs did it need to surpass in order to get here? About 12000. Where would he be if he bailed and went to CDs at 1000, 2000, 5000 or 10k?

Soon 2 B Gone's picture
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Pants wrote:
"A client said he thinks the market just 'isn't going to get any higher' and wanted to liquidate everything. "
 
What is his basis for saying this. Yes, the Dow is at an all time high. How many other all time highs did it need to surpass in order to get here? About 12000. Where would he be if he bailed and went to CDs at 1000, 2000, 5000 or 10k?

That's true.  It's impossible for the market to go down.  Earnings always go up so prices will always go up too.
In order to retire rich all you have to do is buy and never sell.

Reggin's picture
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Life is too short to work with stupid clients. Cut him lose and find someone
that isn't such an idiot.

My Inner Child's picture
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Reggin wrote:Life is too short to work with stupid clients. Cut him lose and find someone that isn't such an idiot.
Amen. Also, if you have idiots for clients, you're an idiot. Our books are a reflection of who WE are.

mktsystms's picture
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Reggin wrote:Life is too short to work with stupid clients. Cut him lose and find someone
that isn't such an idiot.Actually, the client is just the opposite from most "idiots."   Markets are controlled by fear and greed, but fear shows up near the end of a decline, while greed rules at tops.  People always say that they want to sell high and buy low, but human nature prevents them from doing that.The guy might turn out to be a genius.On the other hand, I would tell him that if he wanted to get out of the market, then he shouldn't tie up his cash at all.  I would tell him to keep his cash available, because the next pull back and buying opportunity might present itself before his money is free.You could also suggest covered calls to hedge his position, and that way he wouldn't have the tax consequences of realizing capital gains.

My Inner Child's picture
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mktsystms wrote: Reggin wrote:Life is too short to work with stupid clients. Cut him lose and find someone that isn't such an idiot.Actually, the client is just the opposite from most "idiots."   Markets are controlled by fear and greed, but fear shows up near the end of a decline, while greed rules at tops.  People always say that they want to sell high and buy low, but human nature prevents them from doing that.The guy might turn out to be a genius.On the other hand, I would tell him that if he wanted to get out of the market, then he shouldn't tie up his cash at all.  I would tell him to keep his cash available, because the next pull back and buying opportunity might present itself before his money is free.You could also suggest covered calls to hedge his position, and that way he wouldn't have the tax consequences of realizing capital gains.
Interesting point.

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Soon 2 B Gone wrote:In order to retire rich all you have to do is buy and never sell.
That sounds like Warren Buffett.

haRDcorp's picture
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Munytalks- I will offer this . . . and it's not about cutting your client loose, calling him an idiot, scaring the hell out of him, etc.- it's about approaching everything from his perspective and then educating him on according to what you are hearing, he will probably not accomplish his goals.
First off- what are his goals. Retire at 63? Live on $100k per year? Travel? Weddings for children?
and based on his life goals, what level of risk is he comfortable taking- bracket it because obviously NO RISK is usually best risk for some.
Based on his goals, run some scenarios with his current money in both money markets and in CD's and provide him the probability that based on HIS life goals, he will either hit or miss his goals. If he does miss them, is he willing to sacrafice the boat? retirement at 63? etc. (most likely he will be adament about several of these)
If he can accompish his goals in CD's- then be a good advisor and tell him that you can do it for him unless you don't want him.
If he cannot do it in CD's, show him how he can accomplish HIS life goals and with what approach and asset allocation- then show him  you plan for implementing it.
This assumes you have all the tools to run these scenarios, most effectively using Monte Carlo simulations rather than basic inaccurate averages.
If you provide your client with a solution and monitoring methodology based on his life goals- he's not going anywhere- because you understand HIS WANTS, HIS NEEDS, and HIS DESIRES.
Oh, do this on every client and you not only will keep them, you might actually get referrals from them.
By the way- if you successfully have this conversation- the benchmark is his goals, not an index.
Good Luck-

Soon 2 B Gone's picture
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doberman wrote:
As you well know, it's important not to let the assets leave, even if they're only in a money market account.

No, what's important is that the client feels comfortable with the decisions that are being made.
It is never acceptable for the advisor to be doing what the advisor considers to be the best thing--what is always acceptable is for the client to be engaged in a strategy that the client considers to be the best thing.
Saying that "it's important to not let the assets leave the account" paints the advisor in a negative light.
The client is 58 years old.  Perhaps he and his wife have plans for THEIR money.  A danger of paying advisors based on AUM is that the advisor begins to think of his client's money as his own.
Talking about one hundred years of market history is meaningless when the market is in uncharted territories. The higher it goes simply means the farther it can fall.  The run up since the post September 11th bottom has far outpaced the historical average gain.
Only the most naive investors sit around thinking that there is nothing to be concerned about.  "Earnings always go up therefore the market always goes up" thinking is not what your clients deserve.
So, what do you do?  Suggest they go into cash and surer than hell the Dow will go straight line to 13,000.  Suggest they hang in there and surer than hell the Dow will straight line to 7,000.
You know as well as I do that you have no idea what it's going to do, so your "advice" is nothing but a shot in the dark.
If you don't hear the bears out here you're not listening.  You ignore them at your own peril.

troll's picture
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haRDcorp wrote:Munytalks- I will offer this . . . and it's not about cutting your client loose, calling him an idiot, scaring the hell out of him, etc.- it's about approaching everything from his perspective and then educating him on according to what you are hearing, he will probably not accomplish his goals.
First off- what are his goals. Retire at 63? Live on $100k per year? Travel? Weddings for children?
and based on his life goals, what level of risk is he comfortable taking- bracket it because obviously NO RISK is usually best risk for some.
Based on his goals, run some scenarios with his current money in both money markets and in CD's and provide him the probability that based on HIS life goals, he will either hit or miss his goals. If he does miss them, is he willing to sacrafice the boat? retirement at 63? etc. (most likely he will be adament about several of these)
If he can accompish his goals in CD's- then be a good advisor and tell him that you can do it for him unless you don't want him.
If he cannot do it in CD's, show him how he can accomplish HIS life goals and with what approach and asset allocation- then show him  you plan for implementing it.
This assumes you have all the tools to run these scenarios, most effectively using Monte Carlo simulations rather than basic inaccurate averages.
If you provide your client with a solution and monitoring methodology based on his life goals- he's not going anywhere- because you understand HIS WANTS, HIS NEEDS, and HIS DESIRES.
Oh, do this on every client and you not only will keep them, you might actually get referrals from them.
By the way- if you successfully have this conversation- the benchmark is his goals, not an index.
Good Luck-Excellent advice.  This in contrast to the pablum posted by our friend Soon2BGone/Putsy/NASD Newbie.  It's amazing to me that the moderators let him continue to come back....but for the fact that he's entertaining and has significant expertise at test taking, options strategies, discriminatory hiring practices, and paperclip sourcing.

troll's picture
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munytalks wrote:Remember all the hand-holding we all did during 2001 and 2002?
Remember all the analogies about timing and the market?
Inflation and investing?
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.
I was very good at hand-holding during 2001 and 2002. When the market turned and my clients were making money again, things got easier. People like to make money.
I would like to hear from other advisors out there on how you manage clients' fears when things are going well.
 Sit down and talk to him about risk management strategies, and how much it will lower his risk if he takes some intermediate measures, such as going to a 50/50 bond/stock allocation.  Use hedged products in the mix such as long-short funds or hedge fund.  Talk to him about how much it will cost(opportunity cost) if he goes completely to cash and he ends up being wrong.Talk to him about the risk of taking a drastic measure like this, then the possibility of watching the market go up for another year while he sits on the sidelines watching it, after which time he cashes in his CD's, buys into the market only to find that NOW he has managed to buy into the top.  This is what happens when individual investors try to time the market-or manage market risk-because they take drastic(emotional) measures, rather than approaching things with an objective well thought out plan.What are his retirement goals, and how does his current asset level compare to what he will need to live comfortably?  Can he make enough in CD's to get there.

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joedabrkr wrote:What are his retirement goals, and how does his current asset level compare to what he will need to live comfortably?  Can he make enough in CD's to get there.
What he hears is "Blah, blah, blah, blah."
What you, and any other advisor including me when I was doing it, are unable to understand is how to think like a sixty year old.
Sit there and talk to me about how much risk I'm taking by being out of the market and you'll turn me off for sure.  I know that.
I also know that you are talking about MY MONEY and that until you are my age you'll have no idea how I think of MY MONEY.
The adage, "A bird in hand is worth two in the bush" fits perfectly.  I would much rather earn a guaranteed 5% and a possible 15%.
If you're honest with your clients you'd explain to them that the difference between what you're likely to get them is not that much more than they can get guaranteed if they close their account and put the money in their credit union.
Over twenty or thirty years that modest difference can make a major difference--but when the client is staring at retirement their entire perspective changes.
Those who will survive in this business are those who realize that there comes a day when the only appropriate action to take with your client is thank them for their confidence over the years, and wish them well in the future because it doesn't make sense for them to pay you to manage their money conservatively.

troll's picture
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Soon 2 B Gone wrote:joedabrkr wrote:Excellent advice.  This in contrast to the pablum posted by our friend Soon2BGone/Putsy/NASD Newbie.  It's amazing to me that the moderators let him continue to come back....but for the fact that he's entertaining and has significant expertise at test taking, options strategies, discriminatory hiring practices, and paperclip sourcing.
Joe Boy, do you believe that you are competent to advise a client who is 58 years old and wants out of the market that he should stay in?
What specialized training do you have to call that play?
Are you so sociopathic that you simply don't care about your clients?
I am saying that the role of an advisor is to offer good advice on how to capitalize on what that investor wants to do--not to persuade the investor that he is wrong simply so that you can keep him as an account.
If the client wants to go to cash you immediately follow his instructions, wish him well, and ask him to come back again when his opinion of what is going to happen changes.
Your opinion of what is going to happen over the next year is essentially worthless, just like his is.I care greatly about my clients, and have forgotten far more about how to work with real people and real money than you know.Next time I need to take an NASD exam I'll seek your counsel as to which prep course to purchase.

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

troll's picture
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munytalks wrote:
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.
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" />

troll's picture
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Soon 2 B Gone wrote:
My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. 
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.

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Soon 2 B Gone wrote:joedabrkr wrote:I care greatly about my clients, and have forgotten far more about how to work with real people and real money than you know.
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?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.

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mikebutler222 wrote:Soon 2 B Gone wrote:
My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. 
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.

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?

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Soon 2 B Gone wrote:mikebutler222 wrote:Soon 2 B Gone wrote:
My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. 
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.

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?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.

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Soon 2 B Gone wrote:mikebutler222 wrote:Soon 2 B Gone wrote:
My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. 
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.

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?

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.

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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.

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BankFC wrote: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.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?

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BankFC wrote:
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.

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.

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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.

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<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 
 
 
Soon 2 B Gone wrote:mikebutler222 wrote:Soon 2 B Gone wrote:
My point of view is that as his adivsor you are there to execute HIS wishes in the most effective way possible. 
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.

What makes you qualified to tell a fifty eight year old man that going to cash is the wrong idea at his age?
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?
Soon 2 B Gone wrote:
Why is it the wrong idea?
See above about market timing and required growth.
Soon 2 B Gone wrote:[
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.
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.
Soon 2 B Gone wrote:
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? 
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.
Soon 2 B Gone wrote:
How much better than 5% are you going to do for me after all of the management fees, etc?

 
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.
 

munytalks's picture
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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!

troll's picture
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munytalks wrote:
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'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?

munytalks's picture
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Joined: 2006-04-17

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

BondGuy's picture
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Joined: 2006-09-21

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!

troll's picture
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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.

troll's picture
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joedabrkr wrote: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.

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

troll's picture
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joedabrkr wrote: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.
If one invests in short term maturies how are they taking "significant risk" in purchasing power?

troll's picture
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Joined: 2004-11-29

joedabrkr wrote: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.
What is the lesson that this client will learn?

dude's picture
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Joined: 2005-11-15

Oh sh*t here comes another one.  This time it's not me, I swear.

troll's picture
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dude wrote:Oh sh*t here comes another one.  This time it's not me, I swear.
Prove it.

troll's picture
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Joined: 2004-11-29

Devil'sAdvocate wrote:joedabrkr wrote: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.Have you ever heard of inflation?  Ever looked at an Ibbotson chart?
If one invests in short term maturies how are they taking "significant risk" in purchasing power?

Indyone's picture
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Joined: 2005-05-31

Devil'sAdvocate wrote:
dude wrote:Oh sh*t here comes another one.  This time it's not me, I swear.
Prove it.
I think it's Put Newbie again.

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