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Nick Murray’s hard truths for advisors

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An infinite number of financial advisors have sought the wisdom of Nick Murray, the preeminent Advisor to Advisors, via his books, monthly newsletter and nationwide speaking engagements. Indeed, the astute grand master delivers what they seek.

For more than two decades now, the highly respected coach and author has helped advisors find the crux of how to succeed in the financial advice business. In 2007, he received the Malcolm S. Forbes Public Awareness Award for Excellence in Advancing Financial Understanding.

Murray’s core focus is financial planning, especially retirement planning. To be sure, he proclaims retirement income “the central financial planning problem of our time.”

For some 25 years, he worked as a New York City-based wirehouse advisor with E.F. Hutton, Shearson Loeb Rhoades/American Express and Bear Stearns before going independent in 1992. That was when he also kicked off a speaking and writing career. For the past 16 years, he has focused solely on advising advisors.

The pundit’s monthly newsletter boasts 3,200 subscribers, for whom he conducts all-day conferences; and he also offers FAs “spot coaching” through “Nick Murray Interactive” (www.nickmurray.com). He has written 11 books, including “The Game of Numbers: Professional Prospecting for Financial Advisors” and “Behavioral Investment Counseling.”

The New York-based industry expert, with offices in Southold, Long Island, and Brooklyn Heights, commands $10,000 for a keynote presentation and $15,000 for a three-hour program. He accepts no after-dinner speaking engagements, however, and for breakfast and lunch events “will speak … only after the audience is finished eating and the wait-staff has stopped moving.” So says his website.

No such restrictions applied when Research, a magazine that is part of sister site ThinkAdvisor’s family, recently caught up with the Queens, New York, native by phone and email. In a wide-ranging interview, the no-nonsense Murray, 71, generously — and candidly — shared his authoritative judgment about what matters most in financial services.

Research: Lots of changes are occurring in 2015 — the end of QE, of course; interest rates probably rising; high volatility. Is this a particularly critical year for financial advisors?

Nick Murray: That’s getting into current events and the market — and that way lies madness. An advisor who focuses on those is doomed. He’s a lost soul because he thinks his job is selection and timing. Nobody’s job is selection and timing; everybody’s job is planning. As soon as you start thinking about the economy and the market, the brain freezes.

But surely an advisor should be aware of what’s happening in the world.

Yes, but you don’t change anything. All financial success comes from acting on a plan. A lot of financial failure comes from reacting to the market. Put that on my tombstone! It’s the mega-truth. If an advisor emphasizes portfolio selection and timing, he may be impeaching his own value proposition. No advisor can constantly deliver superior selection and timing: alpha. An advisor who positions himself as providing alpha in return for his fee is setting up a guaranteed negative value proposition.

Many FAs have difficulty probing clients about their life, what’s important to them and their goals. How does that affect their practice?

Somebody who has that trouble should give really serious thought to leaving the business. If you can’t find out what people’s emotions are about money, what they dream of and what they fear, I don’t know how you can build a relationship or create a plan.

Do you believe that advisor and client should connect emotionally?

Absolutely, or at least come to some common understanding about money. At the very least, they should have mutual respect.

To get that common understanding about money, how important is it for the FA to empathize with the client?

Empathize above everything [else]. Roy Diliberto [founder of RTD Financial Advisors] would say that the only two [values] in this business are integrity and empathy. I would add, passion.

You’ve written that your “mission in life is to help people make the right kind of plan” for their retirement years. When and why did that become your mission?

Ten or 12 years ago, as the first wave of baby boomers started retiring. That’s where the preponderant need is and where all the money is. I started to really focus on it when I was writing my [only] book for clients, “Simple Wealth, Inevitable Wealth.” It became clear to me that a life-sustaining three-decade retirement income is the central financial planning problem of our time.

But don’t most pre-retirees have some sort of retirement plan?

There are about 40 million Americans between age 50 and retirement. If 1 percent of them have a written, date-specific, dollar-specific retirement accumulation plan, I’ll buy you a new hat! But at age 50, something really magical happens: People begin to know they’re on the last rung to retirement. A 49-year-old is thinking about a Mercedes and trips to Europe; a 50-year-old is thinking about coffee and rice, and “How much can I start putting away for retirement?”

So advisors must create both a retirement accumulation plan and a retirement outcome plan?

It’s critical that, during the accumulation phase, people work on a plan — otherwise they’ll fail. As they approach retirement, it’s critical that they have a rational distribution plan — otherwise they’ll fail; that is, outlive their money.

That means there’s certainly a great need for good advice from advisors.

Yes, but planning advice rather than: How much do we put in international, and how much do we put in big cap—and all of that dross.

Doing a plan seems a good way to engage the client and build the relationship.

It’s the only way to engage the client. Everything else is sand.

Why do advisors need a great deal of help, support and coaching?

Because they don’t have a robust client-acquisition discipline. Prospecting is one element of it — in the early years, certainly a big element. But the problem is that people stop doing it. However, if you’re getting a significant stream of referrals and introductions, that’s your robust client acquisition discipline.

What else can advisors do to obtain clients?

Give seminars.

Some FAs say that the effectiveness of seminars isn’t what it used to be.

That’s like saying love isn’t what it used to be. Seminars work if you work them.

Please talk about the importance of the advisor’s value proposition as perceived by the client versus as perceived by the advisor. The two views may be different.

It’s intuitive, or ought to be. We get referrals and introductions from happy, productive relationships when [clients] believe our advice is worth significantly more to them than what we charge for it. People for whom we’re convinced we’re doing our best but who don’t appreciate it should be let go. We should never have an unhappy client.

Are robo-advisors a threat to traditional advisors?

No, because they can’t relate on a human level, and that’s drop-dead critical. It’s all that matters.

Your thoughts on the fiduciary standard for all advisors?

I always conducted myself as if I were a fiduciary anyway. And almost without exception, the good advisors I know do the same. So the whole issue kind of gets past me.

Of what value is behavioral coaching with clients?

It’s a major element of an advisor’s capability. He can add significant value — and further enhance his value proposition — by helping clients not to react inappropriately to market volatility.

So when there’s a big decline in equity prices, how does an FA use behavioral coaching to lessen clients’ emotional response?

He doesn’t because by then, it’s far too late. You don’t start lifeboat drills after the ship hits an iceberg; they have to be done in port.

At what point, then, should an advisor be conducting behavioral coaching?

From the outset, clients need to be instructed in the ordinariness of market declines — an average of 14 percent annually since 1980 and, perhaps, an average of twice that [amount] one year in six — and that all declines are temporary interruptions of the permanent uptrend. “This too shall pass” must always be the watchword to counteract the impulse that says, “This time is different.”

Nick Murray: How to do an annual review

Are most advisors good at doing an annual review?

Nick Murray: The diplomatic answer is “I don’t know.” The candid answer is: “I can’t imagine they are because so many of their client relationships are premised on sand — on alpha.”

What do FAs gain from a review?

Personal harmony and a shared commitment to the long-term plan, in that order.

To what extent does an annual review build client trust, confidence and loyalty to the FA?

Used properly, it’s incalculably valuable because it has inherent opportunities. It’s your one way to get in front of everybody and hit a home run, make them realize how right they were to retain you.

Is it a good idea to bring in the client’s other advisors, like a CPA?

Dear God, yes. And the estate attorney, if they can get him or her. This is your one opportunity to get all the stakeholders in the same room. When I did annual meetings, I’d ask for the adult children to be present. My idea of a great annual client meeting is grandchildren crawling around under the table. Bring in the whole family, especially the adult children, whom you otherwise have a high probability of losing when their parents [die]. The more you can get them involved, the better. This is the peerless opportunity to do that.

What about a written agenda?

It’s critically important that the advisor set the agenda because in its absence, the client will set it unconsciously — and in the wrong terms. Ninety-nine times out of a hundred he’ll set it in terms of one-year investment performance, and that’s when all the lights start to go out. If the advisor lets the meeting degenerate into comparing the investments to benchmarks over a year, he’s digging his own shallow, unmarked grave.

Wow, that’s extreme!

The moment the focus goes off the plan and onto the portfolio, it’s the beginning of the end. The question is: What did the advisor claim to be responsible for? Alpha or the outcome? If you denominated even subtly that your value proposition is investment performance, this is where you reap the whirlwind because nobody can constantly deliver alpha. Instead, if you said what you’re managing through planning, perspective and behavior modification is the outcome — the number that the client actually gets in the long run — then [be] proud to stand on the plan.

What should be on the agenda?

The financial plan is the agenda item; there is no other. The portfolio is merely a funding medium for the plan. The review is how much further toward the goals the portfolio has moved, or behind the goals, and whether the client will need to add more money to reach them. The iron law is: If the goals and plan haven’t changed, don’t change the portfolio.

A national Dalbar study last year found that what clients want to see most on statements is their personal rate of return; but only 25 percent of statements include it, according to other Dalbar research. Should you start the review by providing that information?

I don’t know how you could do the meeting without reporting it because it’s critical to the decisions that have to be made. That’s exactly where you should start: Where were you a year ago? Where did the plan call for you to be this year, by extrapolation? Where did you end up this year?

Next on the agenda?

If the plan calls for a 10 percent annual return and you got 8 percent, the client has to know that and be afforded with the advisor’s counsel and the opportunity to either wait out a period or add more money to the plan.

But if you begin with the pivotal issue of personal return, won’t the client try to take control of the review? For example, if the return is below what the plan called for, they might say: “You told me I’d get (such-and-such)”!

No, [not if] the advisor says [in effect], “I made a plan premised on a return, but it was extrapolating trend-line returns. I would never project a return. I never told you you’d get anything — and may God strike me dead if I ever do!”

What should be discussed next?

Finding out if there are any significant life changes in the family’s circumstances as a means to the end of tweaking the plan. If circumstances haven’t changed, the plan shouldn’t change. And if the plan doesn’t change, the portfolio shouldn’t change. Resist any impulse to tweak the portfolio. The plan is the agenda item.

Should the client bring along any financial documents?

No, or the meeting will go on for nine hours. This isn’t that kind of meeting. It’s critically important not to confuse a planning meeting with an annual report meeting. They have two entirely different functions, and everybody has to watch out for introducing so many topics that it becomes Vietnam — it just goes on and on, and everybody gets exhausted and cranky.

How much time, then, should be allotted for the meeting?

Shoot for 60 minutes as a discipline for yourself, but 90 minutes tops.

Should a review be conducted more than once a year?

God forbid! Because then you’re guaranteed it will turn into a perfectly counterproductive performance review. As long as you realize that the agenda item is the progress of the long-term plan, an annual meeting is fine. 

See also:

Warren Buffett’s 8 warnings for investors

6 steps to becoming a billion-dollar RIA firm

The power of asking the right questions