Why investment people get a bad rap!

Let’s start with the assumption that both the client and the advisor are well intentioned.

I believe that even with the best of intentions clients can become unhappy with their advisors because they do not know how to search out a good match.

Let us go over that again:

“I believe that even with the best of intentions, clients may become unhappy with their financial advisors or brokers because they do not ensure that their goals are compatible with the way the advisor runs his/her practice.”

A. Here are some of the criteria people use:

  1. Return on investment
  2. Referrals
  3. Licensing Firm
  4. Servicing the Account
  5. Personal Treatment by Staff
  6. Easy conversation
  7. Years in the business
  8. Education and Qualifications.

What is left out? After you go through this list are you done? No.

Investment Style

No one is paying enough attention to investment style. When I was just starting out I participated in a Trade Show. Two dentists pulled me aside and asked, “Why should we give you our money? What makes you different?” I blew it. I went through #’s A (1) -(8), and so did every other person there trying to woo those potential clients.

We are all different, so the question in this situation could have been, “I have had bad experiences, why will working with you be different?” And, “Why do I need you?

Every Investment Advisor has a unique style, and although many seem to resemble each other, very few are similar. If only 5% of advisors overlap in approach, and only 5% of clients want that approach, statistically you will find the perfect match by chance not research.

Dealerships know this, and I believe this is one of the reasons they provide packaged portfolios of stocks that fall into defined categories like, “fixed income”, or “US large cap”. There are too many variations out there and the average broker cannot customize portfolios for every client, and not every client can describe clearly his or her needs.

I will give you an example of a very unhappy client. There are thousands of variations on this theme, and remember our assumption that both the client and the advisor have the best of intentions.

Client is looking for an advisor and Advisor X has been referred. Friend who referred said he was getting great returns, no administration problems, advisor available by phone, meetings twice a year. Reputable firm, advisor had twenty years of experience, and had a MBA from a good business school. The annual client appreciation night was a wow! Super fun.

Investments are transferred. But Advisor X and Mr. Client are not communicating. Over time Advisor X calls are somewhat strained, and meetings occur once a year, and not at all one year. The relationship has deteriorated, neither is communicating with the other, and lower returns could be the result.

This situation occurs frequently, and that accounts for high client turnover rates and capitulation. Let us look at that initial portfolio and maybe we can pinpoint the problem.

What Transpired

At the initial meeting Mr. Client was delighted to see the number of stocks in Advisor X’s sample portfolio which were identical or mirrored his own investments. The two got along well and Mr. Client was relieved to have met this engaging professional Advisor.

What went wrong? At the time Mr. Client and Advisor X had their meeting, interest rates were low and the economy was recovering. The climate for risk was subdued. Both portfolios had high content in utilities, preferred shares and corporations that were former income trusts. Mr. Client was investing for growth. His portfolio reflected his belief that this combination of “safe” stocks with cash flow would take him to the next growth cycle. Advisor X specialized in generating income from portfolios for low risk, mostly retired, clients. Like two ships meeting in the night going in opposite directions. When public interest in growth returned, and even momentum in technology, Mr. Client could not communicate his need for recommendations that followed this guideline, which was, after all, his consistent focus. Advisor X was risk averse and could not redirect his focus and time to a one-off client who was, statistically, wrong.

B. Here are some questions Mr. Client did not ask Advisor X. Administration

  1. Is the size of my portfolio within an average range of your clients’ portfolios?
  2. Can we have more telephone or in person meetings if we are not in synch on investment direction?
  3. Who takes over for you if you are not available?
  4. If I am a fee-base client can I do my own trading on line?
  5. What is the response time to requests for funds from my account?

Asset Allocation

  1. How much of your clients’ portfolios, on average, are in fixed income?
  2. Do you define asset allocation by age? Or by formulae? Or circumstance?
  3. What percent of your clients’ portfolios, on average over time, are in real growth stocks?
  4. How much of your clients’ portfolios are invested outside of Canada?
  5. Do you balance and diversify if there is a strong trend in one or two directions?
  6. Do you define asset allocation by size of portfolio?
  7. Do you define asset allocation by employment status or gender?
  8. What portion of client assets are invested in Company product? Why?
  9. What portion of client assets are invested in ETF’s, mutual funds or structured products? Why?


  1. Do you recommend packaged portfolios, even when buying stock individually from the package?
  2. What should we do if we do not agree on an investment direction?
  3. How much third-party verification do you need before you recommend a stock to me? Do you weigh your recommendations to Company favoured stocks and fixed income? Why?
  4. Are you licensed to trade options? What portion of your income is derived from options trading?

About You

  1. What kind of investing do you do for yourself?
  2. What is your “style”?
  3. If your Associate recommends a stock to me and I ask, “Why?” are you going to call me or send me a research paper(s), or both?
  4. Are you more of a visionary or an accountant when you assess stock?

(a visionary may be too early and an accountant may be too late)

I think that in addition to the first eight criteria of Part A, these twenty-two questions would highlight future problems. Note, if anyone had questioned me in this way, however nicely, during an introductory meeting, I may have bolted for the door! So be considerate.

My observation is that most people who believe that Advisors are commission hungry, not knowledgeable and dishonest, have a history of miss-match in method, focus, and style. Because the industry is trending to homogenizing the client/advisor experience, the only way to determine if the person sitting in front of you will be compatible is by asking the bold and unusual questions. And to be wise in searching for that good match. I do have a strong belief that a client/advisor relationship based on natural advantages works for most people. I am biased, nevertheless, on www.cashplan.ca there is a short description of conation and the Kolbe A Index. Please contact me at info@cashplan.ca for more information.

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