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Practice Management > Marketing and Communications > Client Retention

‘If I Can Trade for Free, Why Do I Need You?’

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What You Need to Know

  • When casual investors lose interest, advisors remain mindful of their clients’ goals, market movements and risk tolerance.
  • Advisors understand that it’s difficult to recoup market losses, and that there are no do-overs in investing.
  • The conscientious advisor is more than an order-taker, and buying stocks in only one small part of investing.

Financial advisors know stuff. Knowledge has value. Yet when you open the financial section of a newspaper, read a magazine or search online, lots of ads appear talking about trading free of charge.

As capitalists, we are all in favor of “free trade.” As advisors, “trading for free” seems to diminish the value we bring to the relationship. Why does the investor need you?

1. It’s your job.

It’s been said that being an uncle or aunt is much easier than being a parent. Why? You can enjoy time with the young child, then hand them back, returning to your regular life. You don’t need to be concerned with changing diapers, feeding or crying.

You add value because: Casual investors might lose interest. When things aren’t going well, it’s easy to leave statements unopened. Advisors are focused on the client’s goals, movements in the market and the degree of risk the client is taking.

2. Losing hurts more.

Money can be an abstract concept. When clients are making money, they are thrilled. When the market rises, it’s often gradual, over time. When the market falls, it’s often sudden and unexpected. Investors often buy and sell at the wrong time.

You add value because: Advisors look at the big picture. They know the market moves in cycles. They try to recommend high-quality stocks. Those companies continue to be run well, even when the stock market gets volatile. Advisors try to encourage clients not to sell during sharp drops.

3. Money is serious business.

When the stock market rises, making money looks easy. I’m amazed the market can earn more in a day than a short-term bond or bank CD might earn in a year. We forget how hard it is to save those after-tax dollars to accumulate cash to invest.

You add value because: You take the words ”life savings” and “hard-earned after-tax dollars” seriously. You understand that once money is lost, it’s difficult to make it back again. There are no “do-overs” in investing. You are stuck with your results.

4. Investors often hold losers too long.

They also sell winners too early. They don’t realize a stock that declines 33% needs to double, just to bring you back to the starting point.

You add value because: When a stock declines, advisors reconsider the fundamentals. What has changed? They understand “Sell your losers early.” If the fundamentals are good, they might suggest buying more, to lower the cost basis. If a client wants to sell a stock that’s doing well, they might ask: “If you had a horse that was winning races, would you shoot it?” Advisors understand the role of stop and limit orders.

5. You’re the investor’s silent partner.

Suppose someone offered you the following proposition: “You invest your money. You take the risks. If you make money, I’ll take a portion as your silent partner.” You would say: “Why would anyone go into a deal like that?” Welcome to the world of capital gains taxes. (It’s more complicated than that because losses can be balanced off against gains and losses can be carried forward.)

You add value because: Advisors keep an eye on the realized gains and losses scoreboard. They discourage in-and-out day trading because the tax bill could be enormous. 

6. Owing money is never good.

It’s easy to go into debt with credit cards. It’s easy to overextend yourself on margin. If a stock doesn’t work out, the losses all come from your side of the equation. The loan balance stays the same or grows until you pay it off.

You add value because: A good advisor is always reminding the client how much debt they are carrying and the interest rate they are paying. They encourage knocking it down in small chunks.

7. Buying stocks is a small part of the overall process.

Some investors might feel that in a perfect world, you pay something for buying stocks and everything else surrounding it is free. This might be true when the “free” service is designed to sell a product. Ads on TV touting financial products often offer a “free planning guide.”

You add value because: The advisor has a multistep process. It involves gathering data, determining risk tolerance, developing a financial plan, delivering a proposal consistent with the client’s plan and goals, making investments and tracking performance vs. goals moving forward. Buying the investments is a small part of the overall process. 

8. Are you getting a good price?

Buying at the market and execution prices can be vague. If a firm is placing your trades at no commission, it’s logical they are making money in another way. Years ago, trades under 100 shares were processed as odd-lot trades. The execution price was slightly different from the market price.

You add value because: It’s reasonable to assume if an advisor works for a large firm and charges commissions on trades or uses asset-based pricing, the client is getting a fair market price when they buy or sell a stock.

9. The ATM example.

Suppose you withdraw $100 from a cash machine. How much are you charged? Three dollars or more is not unusual. Does the ATM provide a year’s worth of service going forward? No! It felt it did a fine job handing over your $100.

You add value because: Financial advisors usually charge far less, as a percentage of assets. They are working on your behalf and are available when you need them, usually without added costs.

10. You know more than they do.

Some investors think of the advisor as an order-taker, an intermediary. If that’s true, then bypassing the advisor can make sense.

You add value because: Most relationships are more involved than that. When an advisor recommends a stock to buy, they usually recommend when (or if) to sell. They often have specialized training — perhaps they are a certified financial planner. They have a deep bench of specialists at the firm plus a research department to back them up.

These points help remind you of the value advisors bring to the relationship. Investing is more involved than simply buying stocks. Will Rogers said: “Don’t gamble. Take all your savings and buy some good stock and hold it until it goes up, then sell it. If it don’t go up, don’t buy it.” Investing is not that easy.

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,” is available on Amazon.