April 21, 2009
Let prospects know they won’t be selling everything
Many investors are concerned that a new advisor will propose selling all of their investments as a matter of course in order to demonstrate how smart they are (and by implication how ill-advised the investor was in their choice of their previous advisor, or in their attempt to invest on their own.) As part of that, often investors fear that a new advisor will want to sell everything indiscriminately, regardless of the merit of these investments.
Deal with this up front by saying something like “It’s unlikely that we’d be looking at selling everything you own.”
If talking on the phone, you could say: “When we meet, I suggest we take a few minutes to talk about your objectives and goals as an investor and then go through your most recent statement so that we could talk about what might be the candidates to be replaced in light of that.”
If you’re meeting in person and you’ve already had the conversation about the client’s objectives, you could say: “What I suggest is that I take a copy of your statement and that we schedule a time to sit down again later this week. Between now and then, I’ll spend some time going through this in detail so that I can come back with specific recommendations on the investments it makes sense to retain and those that are candidates to be replaced.”
Focus on the positives
If a prospect agrees, focus first on what you’d hang on to - and err on the side of keeping investments rather than replacing them.
Next, write down a list of the investments you’d sell and beside that list write down what you’d replace those investments with.
Then go through each investment you’d sell and talk about what you like about that investment and what you don’t like. After that, talk about the investments you’d recommend putting in place of those investments you think the prospect should sell.
The key is to move the prospect’s focus from the pain of selling investments that are down to the gain of the alternatives you’re suggesting.
Point out tax savings
If a prospect has a significant non-qualified portfolio, point out that they might recoup taxes by taking losses on investments that are down. You can offer to calculate how much they would get back - we all hate taxes, this can be a hot button.
Agree to maintain existing holdings for a period of time
If a prospect is still hesitant and a key reason for their unhappiness relates to poor communication last year, you could say: “I understand your concern about selling positions that are down. If you’re open to moving your portfolio over, we could agree to spend the first month developing a plan for you and spending some time ensuring that we’re on the same wavelength. Only after that would we look at making changes.”
Monitor how your portfolio would have done
Suppose you’ve gone through all of these steps and the prospect is still reluctant to make a move.
As a last resort, you could offer to set up two hypothetical portfolios for them - the one they own and the one you recommend. As part of that conversation, agree that you’ll be in touch about once a month, sending reports, revisiting how the two portfolios are doing, and answering any questions they might have.
Investor skepticism spiked as a result of the market events of the last year,,and that skepticism goes beyond their own financial advisor and financial institution. Investors are skeptical about all financial advisors and all financial institutions. You need an approach to respond to statements like “I don’t want to lock in losses” that respects the level of anxiety many of today’s investors feel.
* Dan Richards conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written and video commentaries and to reach him, go to www.strategicimperatives.ca.
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