What do some clients think the biggest news story of 2019 is? The impeachment hearings? No. Trade talks? Nope. Climate change? You’re getting warmer, but no. To some clients, the biggest news story is free commissions for online trades.
What’s That I’m Hearing? Is This a Tsunami in the Making?
Why is that a problem? Easy. They assume advice, planning, recordkeeping and ongoing reporting gets blended together. They might think the cash register rings when orders are placed. If stock transactions are now free, that means everything else is free too. Put another way, advice has no value. Will my clients ask me to work for free? Will they move their money elsewhere?
14 Reasons Why Advice Has Value
You need to figure out how to have an intelligent conversation about why they should be paying good money for a service they think they can be getting free elsewhere.
1. Online trades are free. Online trading is a relationship between you and the financial services firm. It’s like buying clothing on Amazon. There is a difference. If the clothing doesn’t fit, you can usually return it. If you make an investment and the value goes down, you will find the financial services firm doesn’t have the same return policy. Advisors provide advice. Are you getting that with online trading?
2. When to buy, when to sell. Suppose you have a smart friend. They do terrific research. They buy a stock and tell you about it. Actually, you are pretty lucky. You have several friends, all offering suggestions. Do they tell you when to sell? Although “Let your winners run” has been good advice for decades, there are times when fundamentals change and it’s time to sell. What if your friend moved? What if you aren’t friends anymore? In the best of circumstances, would they call and tell you when to sell? Advisors provide ongoing advice. They have a firm behind them.
3. This time it’s different. In hindsight, investing looks easy. Will Rogers famously said: “Buy some good stock and hold it until it goes up, then sell it. If it don’t go up, don’t buy it.” News on TV is often sensationalized. The market might have weathered wars and recessions before, but “This time it’s different.” Investors bail at inopportune times. Advisors help clients reexamine the fundamentals, the reason you made that specific investment in the first place.
4. Hand holding. That’s what you are doing in the above example. You can’t “sell” that because it sounds childish. “If you think there’s a monster under the bed, come here and I’ll hold you. It’s going to be all right.” What advisors can do is focus the client’s attention on their long-term goals.
5. What do I know? Friends aren’t accountable. If they said the market was going to zig, but it zagged, the client would be upset if they lost money. The friend’s comeback might be: “I’m not a professional. What did you expect?” Advisors are professionals. They sometimes get it wrong too, but clients are often diversified across multiple holdings.
6. You only have yourself to blame. Many people think it’s someone else’s fault when bad things happen to them. When they sit down at their computer and place trades, they own the successful results, complete with bragging rights. They also own the failures. Advisors give advice. If clients don’t like the outcome, they can fire the advisor.