Yet we don’t want to go out on a limb. If we say the market will zig, but then it zags, clients will say “You gave me bad advice. This is your fault.” We want to bring value to the table. Here are eight conversations, each worthy of an outgoing phone call. Let’s assume you already do periodic performance or account reviews.
- Sharing the firm’s research. This should keep you on safe ground. Your firm has a research department or otherwise makes research available. What are they saying? How does your client’s current portfolio compare to their model?
- Allocation changes. In the first example, the firm might have changed the allocation. Maybe they shortened maturities on fixed income or lightened up on equities. Let’s assume they didn’t. Your client’s asset allocation changes daily because prices change daily. In practice, you figure “close is good enough,” but after nine pretty good years in the market, your client’s asset allocation might be underweighted in bonds or overweighted in stocks. Point this out to them. They might prefer to sit tight, but you have shown you are paying attention to their holdings.
- Concentrated positions. They occur for a variety of reasons. They’ve owned it forever and there’s a low cost basis, so they’ve sat tight. They worked there once. Concentrated positions can take other forms. They feel they are diversified but they own five airline stocks. They are overweighted in one industry.
- Margin balances. Their returns may be amplified when the market rises, but they feel all the pain during declines. This situation might have sneaked up on them. Point it out. Suggest a solution.
- Sector performance. Suppose the market is flat for some time. Some clients might get disenchanted with the stock market. Point out the S&P 500 index is made of several sectors. Each usually performs differently, some leading while others are lagging. Can you get clues of which sectors are coming into favor or declining in popularity? Often firms show which sectors they think clients should overweight or underweight.
- Total return. Everyone likes to get paid while they are waiting. Warren Buffett thinks this is pretty cool, too. What stocks in certain sectors have a history of paying solid dividends, possibly increasing them over time? Your firm probably has a recommended list.
- Beneficiaries of rising interest rates. The market works in cycles. This isn’t the first time interest rates have been low, gradually rising over time. Which sectors and which companies are beneficiaries? The firm should have some research on this topic, too.
- Defensive stocks. Many institutional investors are in for the long term. Pension funds and endowments don’t stuff money in mattresses very often. What sectors do well if the economy weakens? The general public still needs to buy necessities. What companies generally continue to make money?
Will your client take action? Maybe, maybe not. Have you shown you are acting, not reacting? Yes. Is that a trait that an investor wants in an advisor? Yes.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” can be found on Amazon.