Useless RTQ questions

Here are examples of questions I’ve seen on RTQs from well-known investment firms that tell you zilch about the client.

Pointless RTQ question #1

My knowledge of investments is: nothing, basic, fair, advanced.

Why this question achieves nothing:

Everyone who watches CNBC thinks they know everything about the stock market when essentially they know nothing. How many people are going to admit they know nothing about investments? I keep harping on the fact that, especially in the beginning, clients don’t trust you!

The question should be more like this: My knowledge of the investment risks likely to govern my portfolio is: nothing, basic, fair, advanced.

Pointless RTQ question #2

Examine the table below, which shows the best and worst case annual returns of five hypothetical portfolios. Which set of outcomes would you find most acceptable?

Scenario #1, average annual return 6%, best case 17%, worst case -6%

Blah blah blah

Why this question achieves nothing:

As said before on my podcast with Aaron Klein of Riskalyze, it is statistically unlikely that a portfolio will achieve any one particular market rate of return. Presenting a worst-case scenario like this, no matter how many disclaimers you tack on to the end of this questionnaire, is misleading.

This is irrelevant because it doesn’t name a dollar value. How many clients are going to connect with the fact that losing 6% of their portfolio equates to $500,000? Once they see the red ticks, it has an entirely different meaning to them than an innocuous little -6%.

Pointless RTQ question #3

It is acceptable to invest in safe investments that don’t tend to fluctuate and I accept the fact that they offer less potential for higher returns. Strongly agree, agree, disagree, strongly disagree

Why this question achieves nothing:

There’s no context. Sure, I’d say “strongly agree” if it were 2008 or if I just lost a boatload of lettuce. But if it were the top of a 10-year bull market I’d say “disagree.”

Also, what does “safe” mean? What does “less potential” mean? What does “higher returns” mean?

Last, it just sounds like a quote from a legal briefing.

Getting to what’s real

Our emotional being, not our rational selves, governs our behavior.

Our being is protected by several coats of paint, layers that build from our experiences in life. Some of these we recognize as purple or blue and others are invisible to us, laid on our subconscious without us even realizing.

The RTQ doesn’t get to this because it neglects what’s real:

• What about our emotional biases?
• What about our “blind spots”?
• What about how we really behave in real life in the face of adversity, pressure, and disappointment?

Here are a few of mine, for example. Like pins in a pin cushion, these experiences have pierced my heart.

Deep, unspoken shame about money

I don’t talk about this much; it’s painful for me to even admit these things happened:

• One of my (ex) friends once told me that for someone who went to Harvard I make nowhere near the amount of money I should.
• The first year I was an entrepreneur, way back about a decade ago, I made about $15,000. I was ecstatic I had made anything at all. However my (ex) accountant was going over my tax return and said, “That’s it? That’s all you made?”

Shame creates fear and makes people overreact at the prospect of making what they perceive to be the same mistake a second time.

Been taken advantage of

Go knock on the door of everyone on your block and you’ll find that almost everyone has some money scandal to tell you.

• An (ex) accountant once quoted me a certain price for doing my tax return.
• However, once I chalked up the financial statements displaying how much money my business made that year, he sent me a revised bill (over email) almost double what he quoted, although no additional work was required.

I don’t walk around feeling angry about this, but who knows when a feeling of distrust for people who deal with my money could strike. The nature of emotion is that it can be conjured up instantly.

Emotion can be a weird lightning bolt that zaps you and makes you act nuts. Now, all of a sudden, the client hates your guts and wants to reverse every single decision he/she has made for your portfolio.

Prone to being illogically stubborn or irrationally competitive

I can’t even believe some of the crazy money things I’ve done. I recently ended a four-month battle with my insurance company over a claim in the amount of $14.27. I was not going to back down and pay them for their processing error.

Foolishly stubborn? People can get so weird about money.

Ever done something like what I’ve described?

Right.

You go to buy something you could well afford and the salesperson is ringing it up and all of a sudden you’re asking about the return policy. You’re at dinner and your friend is talking about their recent huge bonus and now you’re thinking, “You know, I don’t like him/her as much as I did before this conversation.”

Irrationally jealous? Now you know why you get these weird clients phone calls out of the blue.

It’s human nature.

An RTQ that sees beneath the layers

I know you want to get to the RTQ and get started. But if you do that, you’ll never get underneath the layers. Ask questions like these to get them talking:

• • Think back to when you wrote a check for the largest amount of money you have ever spent in your life. Would you do it again? (Don’t ask them for specifics on the amount; just get them talking about what they felt like when doing this).
  • Who do you take after the most in terms of your money habits – your mom or your dad?
  • How long do you think it takes before you can call something truly a “loss of money”? Weeks, months, years?
  • If there’s one time in life where you feel you left a lot of money on the table, what would it be?
  • Ask them to draw a line graph of their money history starting at birth. Just hand them a pen and a piece of paper. Then ask them to draw how they see the future trajectory going. This will be up and to the right, no doubt, but compare the history to the project and see if they are the same trend. If not, ask why.
  • When you get in the car for a trip, do you write out the directions beforehand, look them up on your phone, or ask someone for directions along the way if you get lost?
  • Which problem would you rather have: losing $50,000 or missing the opportunity to make $50,000?
  • Have you ever made a financial decision that you’re not proud of?
  • What was the worst experience you had with someone who helped you with your finances, taxes or estate? What made this experience so unpleasant?
  • The last time your portfolio was down $30,000, what did you do? Do you feel that was a good decision or would you do it differently next time?
  • What would you do if the tables were turned and you were the financial advisor and I were the client, and my portfolio were down $30,000 in three months?

For more tips on how to talk to clients about risk, check out my podcast with Hugh Massie of DNA Behavior.

Some of these questions are very direct. What if you can’t get them talking? Tell a story of a time when you were vulnerable. Doing so will make them feel okay doing the same.

Emotion conjures up emotion.

For example, once I was having this awful meeting with a woman who just wouldn’t open up to me. I finally looked at her and told her a story about how someone I loaned a considerable sum of money failed to pay me back. All of a sudden, everything changed. It was like a new conversation.

Sara’s upshot

It’s all about the meaning behind what you say. If you’re looking for better ways to communicate with clients then please consider joining my membership.

Sara Grillo, CFA, is a top financial writer with a focus on marketing and branding for investment management, financial planning, and RIA firms. Prior to launching her own firm, she was a financial advisor and worked at Lehman Brothers. Sara graduated from Harvard with a degree in English literature and has an MBA from NYU Stern in quantitative finance.

Read more articles by Sara Grillo