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My Client Thinks Investment Advice Should Be Free. What Now?

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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.

7. Tax consequences. The federal government isn’t a big fan of day trading. That’s why taxes on short term gains are higher. Suppose an investor sits at their screen, trading all day. If they are wildly successful, they have risked their money, yet the Federal government is their silent partner. Although advisors cannot give accounting advice, they can warn clients about tax consequences. They see the big picture.

8. Temperament. Are any of your friends drama queens? Could someone fit in well on one of the Real Housewives series? Do you have scary friends who get physically violent when the get upset? These are not the type of people who should be making their own investment decisions. Advisors are used to working with many personality types. If a person isn’t a good fit for one advisor, they might be a good fit with another.

9. Investing takes time. Investors can “set it and forget it” with a robo-advisor platform. Actually, they could have done that when the first balanced mutual fund came out in 1928. Many investors want to get more involved, choosing stocks or sectors. The stock market operates on a 24-hour cycle. Events happen in Europe and Asia that affect our market at the opening. Advisors at big firms have analysts on the ground in these diverse markets. They provide advisors with commentary and advice almost immediately.

10. Part of a bigger picture. There’s a process in place, starting with data gathering when the client walks through the door, leading though multiple steps until the client is tracking progress to goals with their advisor. Placing trades is only a small part of the process. Planning could be sold as a standalone product. Reviews and ongoing advice could be billed on an hourly basis, similar to lawyers and accountants. What might that cost? Wouldn’t clients prefer the service wrapped into a package?

11. Juggling balls. Clients often don’t have just a single financial advisory relationship. they might save in one place, trade in another and invest in a third. Someone needs to make sense of how the pieces come together. Their accountant can do it, for a fee. Advisors often pull the various accounts together in a consolidated report for the client’s benefit.

12. What if you lose interest? Investing has become a spectator sport. People like talking about it. Everyone has an opinion. Do you know anyone who stopped going to the gym because they got bored? Planning for your retirement shouldn’t fit into that category. Advisors stay focused, even if clients don’t.

13. Vacation. You can put your gym membership on hold. Unless you sell everything in your portfolio and accept the tax consequences, you don’t have that option with an investment account. The client might be out of the picture for several weeks, but their advisor is still on the case. It’s not uncommon for advisors to contact clients on vacation if something important needs attention.

14. Pay as you go. Buy a new car and it depreciates when you drive it home. Buy an investment with a front-end load or surrender charge and there’s a cost to get out, because it’s sold as a long-term investment. Although managed money is a long-term investment too, you only pay for the time you are in the program. If the client is unhappy with the results or the relationship, they can take their money elsewhere, mindful of the tax consequences.

Advice has value. That’s the message you need to communicate.


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