Everyone wants to know “How did I do?” They look at how the indexes closed the year. If the Dow Jones Industrial Average was up about 17%, they might assume if their account started 2021 with $1 million, they should have at least $1.17 million in January 2022.
Message: Their portfolio includes stocks, bonds and cash. These each yielded different returns. Their performance should be measured versus a blended index. You can do that for them.
2. The family index.
Beating the indexes is a tough game to win because even if you owned a tracker fund, the administrative costs and other fees reduce the return. It’s a better strategy to determine the rate of return the client needs to achieve to achieve their long-term goals. One advisor I met calls it “the family index.” If the client’s time horizon is long, it’s often a low number. However, it’s always a positive number, whereas indexes can deliver negative returns. (When you don’t hit the family index number, it needs to be recalculated going forward.
Message: The objective is to stay on track. If we outperform a few years in a row, we can recalculate the index, taking less risk as the client gets older.
3. Progress to goals.
This ties into the family index. Are we on track for hitting your long-term goals? Is the client adding money when they said they would? Are their returns exceeding expectations?
Message: If the client’s accounts are outperforming, financial independence may be closer than they think. Retiring earlier may be a real possibility.
Your client has an asset allocation model aligned to their risk tolerance. The percentage amounts may be static, but the portfolio value changes every trading day. The portfolio may need to be brought back into balance. Has the firm changed its recommended allocations?
Message: Money is in motion. Can the client add fresh cash (bonus)? Do we need to lighten up on equities and add more to fixed income?
5. Our point of view.
What does your firm think the stock market will do in 2022? What about the economy? How about interest rates? Your award-winning research team is one of the reasons your client has chosen you and your firm.
Message: What steps do we need to take to prepare for what might happen?
6. Overweighting and underweighting.
The firm’s forecasts often say these sectors will do better than those sectors. It’s rare an analyst says “get out of that sector,” but they talk about overweighting and underweighting. The S&P 500 index has 11 sectors. Your portfolio reporting tools should show where the client is over, under or in balance, sector by sector.
Message: This is when you talk about lightening up or adding assets in specific places.
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7. New ideas.
What should we add? You have ideas. It might be a great money manager in a sector where the portfolio needs representation.
Message: Based on what we need, here’s an idea that would be a good fit. I like everything you already own. Can you add fresh cash?
8. What has changed?
This question should go to the top of the list, yet the first thing on the client’s mind is “How have I done?” You want to know if there are major lifestyle changes afoot. Is their job in jeopardy because the firm is being sold? Have they given birth to twins? Have they decided they want to retire early?
Message: Your financial plan is a dynamic document. We need to add in these new developments and run some scenarios.
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9. How much do you owe?
This is an awkward question, like certain ones your doctor asks during your physical. If interest rates rise, this will effect their variable interest rate debt. Their home equity loan is a good example. How much do they owe on credit cards? What’s the interest rate? Do they carry a margin debit?
Message: They need to be proactive about reducing debt. You know how to have this discussion.
10. What does your accountant say?
You want a collaborative, not an adversarial, relationship with their accountant. They might not have met yet, because it’s early January. The new tax structure hasn’t become law yet. They might have given the client advice about tax-free income.
Message: You want to be respectful. Draw the client out. Determine how this advice can be woven into your recommendations. If their accountant likes you, they might suggest the client consolidate other accounts with you. They might send referrals.
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