Wade Slome does his best to avoid know-it-alls. As founder and president of Sidoxia Capital Management in Newport Beach, Calif., Slome set up shop as a certified financial planner in 2007 and now manages $12 million in assets. His practice has performed better than might be expected, given that the 2008 stock market dive came so soon after his launch. He concedes, however, that in building his practice he has encountered many challenging moments including dealing with prospective clients (and even some existing ones) who seek his help but also come armed with all sorts of rigid ideas about how to manage their money.
"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.
Sutherland asks his clients to look logically, scientifically and, if all else fails, metaphorically at proposals. When the clients insist on index mutual funds, noting that markets move with the same odds overall for everyone, Sutherland points out that 50% of tennis players win and 50% lose.
"But I want John McEnroe on my doubles' team," he says. If clients have a sense of security about bonds that they developed decades ago, he points out that times change. In his head, he tells them, he runs a marathon as he did 30 years ago, but his body tells him otherwise. "I am a big believer in having to look at what is true today," he says.
Sutherland's past, however, does provide him with some clout with clients. He says he recognized the importance of international markets in the 1970s when few others paid attention.
"I remember hearing, 'He's a freak - he's talking about international investing,'" Sutherland says, able to laugh in hindsight, thanks to the handsome payoff for investing overseas before others.
Daryoosh Khalilollahi, a financial planner in Berkeley and El Cerrito, Calif., concedes that he throws up his hands in defeat sometimes when confronted with clients who cling to bad ideas. "I honestly haven't come up with any specific tactics to deal with them - I just cope," he says.
His best fallback usually includes quantifying his arguments. "You just show them with numbers and reasoning and try and change their opinion that way," he says.
Khalilollahi has structured his planning business so that he offers only hourly financial planning advice and does not directly manage clients' assets. He believes this approach helps him with stubborn clients because he has no possible conflicts of interest for proposing a certain approach. "I only give advice," Khalilollahi says. "They know they don't have to implement it."
Justin Wine, a planner at Aspen Wealth Management in Washington, D.C., advises about 25 families and has $50 million in assets under management. Wine believes the relative smallness and resulting intimacy of his practice enables him to work with clients in a manner that rarely leads to conflicts between his beliefs and theirs.
He listens to his clients, but he also makes it clear that he intends to provide them advice based on his viewpoint. Wine says he "reinforms" clients regularly that "hard-and-fast rules are not always applicable." He tells them that "good advisors will look carefully into each client's situation."
But common themes present themselves, he acknowledges. "To make returns, you don't have to have traditional risks or traditional exposure - it can be more sophisticated than that. You need to have exposure, but it doesn't have to be in the traditional sense. I can, for example, make almost as good returns in master limited partnerships and that is less volatile than owning S&P 500 stocks."
For Wine, the key is providing "risk-adjusted" management of money, which requires "looking outside the box," he tells clients.
Some clients, the ones Wine to likes to call "nervous Nelly types," would like to have all their funds in cash accounts. At the other end of the spectrum, clients have to be reminded regularly that the goal is hitting singles steadily, rather than striving for out-of-the-park performance all the time.
One nervous Nelly wanted to retire early but had no realistic possibility of doing so because she insisted on keeping all of her savings in cash. Wine persisted, using endurance and patience. "It took me the better part of a year to reframe her thinking," Wine recalls, but, he says, he prevailed.
Miriam Rozen, a Financial Planning contributor writer, is a staff reporter at Texas Lawyer in Dallas.