Today's investors are more knowledgeable, but it comes as a result of the information overload thrust in their faces each and every day. This barrage of data is, in my opinion, creating both roadblocks and opportunities. The financial media are great at presenting topics or products for discussion. In turn, a prospective client will become an "expert" themselves on that particular snippet. Unfortunately, there is typically a lot more to a given subject than presented. Let's face it, the information is not always accurate or complete. We advisors must fill in the blanks.
This is where the real work begins. We have to be proficient in identifying those prospective clients that will remain open to the discussion, and those that will not. You may have the best plan or solution for a particular situation, but if that prospective client has heard someone speak or read something that is contrary to your position, you may be in for a great deal of resistance. If you're like I was about five years ago, I would expend a great deal of energy and resources trying to convert that prospect to my side of the table. You have to be able to get a sense of the likelihood that this person will be a fit for your practice. The prospect may have sizable assets, but if they are going to push back on every recommendation you offer, it may not ultimately be a good business decision to take them on as a client. The hardest part can be making the decision to move on.
Let's look at an example; the Roth conversion opportunity for 2010. There isn't a more prevalent financial topic out there at this time. Thanks to the financial media, every man woman and child is aware of the opportunity to convert to a Roth IRA in 2010 regardless of income. But as the saying goes ... a little bit of knowledge is a dangerous thing. They know you can do it, but aren't asking if they should do it. Does the investor understand that converting creates an immediate tax liability? Do they understand that the tax needs to be paid from non-IRA assets for the conversion to be optimal? The conversion is not effective if the investment loses value. Why would you pay current taxes on an account that loses money? Do people understand that they have until the filing date of the return, plus extensions for 2010 taxes in order to re-characterize the conversion if the aforementioned situation occurs? An advisor who can fill in the blanks in these discussions will create opportunities to grow their practices with clients, not just customers.
Not every investor is capable of, or interested in the amount of time, energy and resources it requires to effectively manage their assets. If you present yourself properly and acknowledge the client's level of understanding of the issue, you may have a new client. If the prospect is un-swayed and resistance persists, then it may be best to walk away. I know that I have learned this lesson the hard way. My clients appreciate my counsel and are better off as a result of it. Fortunately, I am in a position to be able to choose who I work with and when. It is as much a selection process for me as it is for the prospective client. Take the time to put the prospect through your process and make a good business decision. You and your staff will be glad you did.
Mark A. Cortazzo, CFP is senior partner with MACRO Consulting Group in Parsippany, N.J.