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Portfolio > Economy & Markets

Firing Clients When They Become Too Directive: Why I Did It

By Mike Patton

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Late last year I wrote about a client, who after only four months with me, was concerned about  the performance of his portfolio. We were up slightly, and compared to stocks which were down slightly at the time, I reasoned that we were doing all right. No matter how hard I tried to explain this, he wouldn't, or couldn't, hear me.

During the second quarter of 2010, the Fed warned about the threat of deflation. If deflation had occurred, the price of stocks, bonds, commodities, etc., would likely have fallen. But they didn't fall and deflation didn't materialize. Why? Because the Fed embarked on another round of printing money.  As a result, the dollar is weaker, so it takes more dollars to purchase goods. Inflation is not a naturally occurring phenomenon, it is Fed induced. The Fed, considered by some to be the fourth branch of government, has tremendous power without the constraint of Congressional approval. In other words, the Fed can print as much as it wants. Back to my client.

The client is directing me to buy this and sell that. The portfolio is performing very well now, and although the client has every right to "call the shots," this also does not fit with my business model. As a fiduciary, I have a duty to diversify. When the client begins to make the calls, risk can get out of line, and diversification can come into question. If I make the calls, and the investments perform poorly, I take the responsibility. When the client makes the calls, if the markets rise, they take the credit, but when the markets fall, I fear the finger may be pointed at me. "Why didn't you sell out of XYZ?" for instance.

Today, I did what I should have done back then. I resigned as his advisor. It's possible that I may continue to update his financial plan, but that will have to be initiated by him. He's not a bad guy or anything. In fact, I like him. It's just that he feels the need to be more directing that I prefer.

Do you have any similar stories? If so, what did you do and how did it turn out? I'd love to hear your comments.

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