Close Close

Portfolio > Economy & Markets > Stocks

Why and How to Educate Your Next Client

Your article was successfully shared with the contacts you provided.

From 1995 to 2004, the Securities Industry Association conducted an annual survey of investor attitudes. According to the 2004 report on the survey:

“84 percent think the industry should be doing more to educate investors. This sentiment has been high since 1995.

“The proportion of investors who believe ‘they know everything one needs to know’ about investing has not risen above 6 percent since the study’s inception.”

The survey also stated, “Investors are most likely to admit they wish they knew more about the different types of investments available to them, and the risks associated with the investments.”

Educational Selling

The reason why investors want more education is not hard to figure out. They know they have to make decisions that will affect the rest of their lives and they know they don’t know how to make those decisions.

If 84 percent of investors want more education, and if substantial numbers obviously don’t have it, then what should we do? How about, “Let’s provide it.” One obvious venue in which to provide the know-how is the sales presentation.

Let’s call this early phase of the presentation “Educational Selling” and define it as a step-by-step process in which the advisor teaches the investment concepts that the client needs to understand in order to make an informed decision.

When this method is properly executed, in most cases the client or prospect will ask to buy. Closing is really necessary only when they are firmly planted on the fence.

Among its benefits are:

o Rarely, if ever, will you need to close a sale.

o Rarely will you deal with objections.

o Frequently, you will bring the client to the point he or she asks, “Well, what do you recommend we do?”

And in the process, you will create clients who hold you in such high esteem that they will do what you advise without additional selling.

Chart Board Financial Education

In the overall sales process, the “financial education” step comes right at the beginning of the final interview. You have called the client back into your office. Your proposal is ready, but you don’t dare present it yet. Before you present your recommendations, you make absolutely certain your prospect understands all the key concepts necessary to make an informed decision.

Let’s say you have concluded that Dr. and Betty Bubbalong should invest a portion of the proceeds from the sale of their medical practice in equities.

What do they need to know in order to agree with that conclusion?

At a minimum, they need to know:

o How an investment in stocks has outperformed every other asset class.

o How asset allocation reduces risk.

o How inflation and taxes affects purchasing power of the income from fixed-income securities.

o How time in the market reduces risk.

In my opinion, the best format in which to present these ideas is on a flip chart or white board. Slides are acceptable, but a flip chart or white board is magic.

Here’s why: You are more persuasive standing up than sitting down. When using a chart board or white board, you have to stand up.

Here’s how I might handle the issue of long-run performance of different asset classes. I would stand up, go to my white board, and write these numbers on it, as shown below.









As you make your little presentation, add the phrases shown on the second chart on the right, then say as follows:

6.9% – Since 1871

6% – S&P Core Earnings

4.5% – 30 Yr Bond Yield

2.5% – Inflation Forecast

2% – Yield after Inflation

2.5% – Govt Bond Inflation Protected Yield

$181,000 – Return from bonds, 30 years

$574,000 – Return from stocks, 30 years

Dr. and Mrs. Bubbalink, I’ve written some important numbers on the board for you. I am going to explain them to you. You might want to write these down.

These are based on an article by Dr. Jeremy Siegel. He’s a professor of finance at the Wharton School and the author of several important books on stocks. The most important of these is Stocks for the Long Run in which he analyzed stock market performance over several very long periods of time.

I’m going to quote from a statement from an article Dr. Siegel wrote called “Stocks: The Asset of Choice for the Long Run.”

He said, “During the past 204 years (through 2005) stock investors have earned an average 6.8 percent per year after inflation and that return has been remarkably stable over long periods. Over the past 80 years, real stock returns averaged 6.7 percent per year, and since the end of the Second World War, the annual return has been 6.8 percent. This return includes both capital gains and dividend income and is measured after the effects of inflation have been subtracted. These numbers mean that on average, investors’ wealth has doubled in purchasing power every decade in stocks, a feat rivaled by no other asset class.”

Now, you and I both know, that past performance does not guarantee anything. But we also know that those who do not remember the past are, according to a statement chiseled in stone over the National Archives Building in Washington, DC, “forever condemned to repeat it.”

So let’s look at these numbers.

6.9 percent is the historical yield on stocks since 1871. Let me remind you that this is after the effect of inflation has been removed from the figures. Dr. Siegel uses this date because 1871 is really the date from which we begin to have reliable historical information.

The 6 percent figure is a very conservative estimate of earnings going forward. This particular number is from about a year ago. It’s called the “S&P Core Earnings” and it’s from S&P, which stands for Standard and Poor’s, which is the name of the company that compiles the S&P 500 index, which you hear about on the nightly news. According to a spreadsheet buried deep in the S&P website, the actual 2006 core earnings were a little higher, and the 2007 forecast a bit higher still, but we’ll stick with Dr. Siegel’s example because he did some very interesting calculations.

4.5 percent was the 30-Yr Bond Yield at the time Dr. Siegel wrote his article. The current yield is 4.8 percent but again we’ll stick with Dr. Siegel’s numbers for the purpose of this illustration.

2.5 percent is the Inflation Forecast.

2.5 percent is also the Government Bond Inflation Protected Yield. The current yield on this is 2.3 percent but again we’ll stick with Dr. Siegel. This means that if you own these “inflation-protected” bonds, the government will guarantee you 2.5 percent above the rate of inflation.

So you can’t count on 4.5 percent from bonds. Your yield after inflation is actually about 2 percent.

$181,000. This is the Return from bonds over 30 years.

$574,000. But using the very conservative “core return” projection, a Return from stocks over 30 years could be much larger.

Now no one is suggesting that anyone can make a reliable 30-year forecast. But if we had made an investment 30 years ago, we would have been in this ballpark. Do you see why we believe that at least some portion of your assets needs to be in equities?

Selling the Idea

What I actually did here was “close the sale.” What was I selling? It was the idea that “a portion of your assets needs to be in equities.” If Dr. and Betty Bubbalong don’t buy that, they won’t buy your portfolio of equities. If they do buy that concept, they might.

Author’s Note: This series of articles will wrap up in a few months with my “Profile 2007.” You are going to help me write it, because I’m going to build it from the best questions of 2007. So far, I have received over 300 questions, and if you send me your best three questions to ask an investor, not only will you receive the Investor Profile, but also I will send you all the questions so you can pick and choose those that best fit your style. But to get, you have to give. So go to

Bill Good is chairman of Bill Good Marketing Systems in Draper, Utah; see


© 2023 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.