"I call them do-it-yourselfers," Slome says. "There is so much information in the market now, so everyone is an expert."
Most planners know the type Slome is referring to. Given the breadth of information available online, prospective clients often enter planners' offices with preconceived ideas. The axioms abound: Long-term-care insurance is mandatory. Invest exclusively in passively managed index mutual funds. Never buy annuities. Diversify or die.
Most planners, however, draw their own conclusions about those so-called rules and may disagree with them. More significantly, advisors recognize that each person does not fit neatly into a single category and therefore his or her needs require individual attention. The challenge is striking a balance between patiently listening to clients' strongly held (and potentially flawed) opinions and efficiently driving the conversation in the direction of optimal answers and solutions.
TURNING DOWN CLIENTS
For Slome, that means rejecting some business. He believes in identifying prospective clients who are incorrigible know-it-alls and then steering clear. "There is no use in setting up that relationship," he says. "You will just be butting heads. Some of these guys have their own ideas about the market - and they just want to talk. I tell them they are buying my ideas. If the prospective client doesn't buy into your philosophy, it's best to separate early."
Other planners acknowledge that their rosters include individuals full of misinformation. As a result, the planners say, they deploy a wide range of tactics and strategies to cope with clients who insist on ideas that run counter to the professional's approach.
Many planners rely on time and patience to nudge such a client. One planner often uses sports metaphors to coax clients away from bad ideas. Another takes baby steps - such as reconfiguring reports - in the direction of accommodating the know-it-alls.
Even Slome has a few clients he agreed to take on despite the fact that they have notions about money management that clash with his own. In those instances, he says, he has proposed that the clients establish separate accounts for some of their assets that only they control. "If you want to speculate on these ideas, which I disagree with, use this," he tells them. For a few clients, he has changed the way he reports results. "If they want things presented a certain way, we make adjustments to make them happy," he says.
FEAR OF STOCKS
During the 2008 market collapse, many clients of Mark Prendergast at Inspired Financial in Huntington Beach, Calif., seemed intent on "walking off the ledge" by seeking to abandon equity investments altogether. Prendergast, whose firm manages $75million in assets, says he was able to talk all but three of the firm's roughly 85 clients into staying put with their asset allocations rather than acting rashly.
For the three exceptions, Prendergast says, he let them take the money out only if they agreed that they would get back into stocks when the Dow rebounded to 7,500. He says the notion of leaving the market because of a downturn fundamentally counters his own belief that timing the market is impossible. By setting a number ahead of time, however, he had some sense of comfort about the clients who insisted on pulling their assets.
Paul Howard Sutherland, a planner with offices in Traverse City, Mich., and Hawaii, manages $575 million in assets. Sutherland says he spends much time with clients debunking so-called conventional wisdom. But Sutherland does feel empathy for their insistence.
"It's very hard to give up a truth, even if the truth is not a truth anymore," Sutherland says, adding that he tells his clients: "Our brains are wired to oversimplify complex things, but complex problems require complex solutions."
Modern portfolio theory represents a bugaboo (as Sutherland characterizes it) that his clients have promoted often, he says. The theory, which won a Nobel Prize for the economists who devised it, argues for selecting a mix of investment assets that has collectively lower risk than any individual asset. But Sutherland explains to clients that while modern portfolio theory accounts for volatility, it fails to account for value.