Building any business from scratch is difficult. Building a business where the product is an intangible may be a tougher challenge. This is because you have to motivate a person to buy something they can’t touch, smell, hold or see.
Basically, clients make the decision to hire an advisor based on a recommendation from a friend or through conversation with us. However they arrive at their decision, it’s important to understand that they need to be comfortable with the advisor’s investment philosophy. Although some clients are less interested in the details, the point is, they need to attain a sufficient degree of trust in the advisor before moving forward. Otherwise, assuming the relationship does materialize, it probably won’t last long. Recently, I lost what I thought was a good client. In this post, I’ll explain why and share the lesson I learned.
When I went independent in April 2007, little did I know that a near collapse of the entire financial system was just around the corner. Building a business in that environment was more difficult on some levels and easier on others. Easier because clients were afraid and were actively seeking advice. Difficult because for every dollar you brought in, some of it was lost to the market. As a whole, in 2008, my clients averaged a 16.25% loss. But just when I thought I was about to cross an AUM threshold, another decline came and that made it tougher to sustain an asset level, especially for a new business like myself.
Recently, one of the clients I gained during this period made a decision to leave. He had been tinkering with buying individual stocks (on paper only) and came to believe that he could earn more with this approach.