We are obviously living in a very unique time. The loose money policies of government and Wall St. have brought us to a precipice. As an independent advisor, I too have been watching my clients’ accounts shrink. Since my income is tied to their value, it has also been shrinking. My fear has been that clients will reach a breaking point and want to jump off the ship in the middle of the storm. Yes, I have been concerned about the possibility of losing business.
Archive for October, 2008Change. Clearly, it’s the one thing which remains constant. When I started this journey over a year ago, the decision I had was to align with an independent broker/dealer or become an RIA. I chose the latter. In retrospect, I’m very glad I did. I also made the decision to custody my client’s assets at one of the largest firms, partly because they had great name recognition. Since I was starting from scratch, in terms of assets under management, I needed a custodian with a lower AUM minimum. Well, this firm’s AUM minimum was reasonable and within seven or eight months, I had exceeded it. I was actually over their minimum by a few million dollars when they made a decision to raise their minimum. Their new minimum was double the old one and once again I was under some pressure to get to their new benchmark. The problem is, for every dollar I was bringing in the door, given the current bear market, I was losing ground. Even with the bear market, I’ve remained over their original minimum. Now comes the punitive part of the story. If I am under their new minimum on a calendar quarter basis, I will be charged a fee of $1,200 for that quarter. For a newer business, this is somewhat significant. So I am left with a choice: to stay and pay their fee for a few quarters until I reach their minimum, or leave and find another custodian. I am now searching for a new custodian. Recently, I subscribed to CNBC PLUS. For about $10 per month, I can log in and watch CNBC as it appears on the television. This is a great way to keep up with the very latest news surrounding the markets and the economy as I’m sure you all know. With the very volatile markets of the past several months, I have been trimming my client’s exposure to stocks, anticipating further declines. The most aggressive client portfolio I have at this time, in terms of asset allocation, is about 33% in stocks. I also subscribe to Morningstar Advisor Workstation – Office Edition. This costs around $5,000 a year and has proven extremely helpful in managing my client’s portfolios. What a week in the market! My wife and I decided at the last minute to take a cruise. It began on Monday and the Dow industrials went down 775, then up 500 on Tuesday, then down, down, down (Yes, I was checking the markets regularly). What should an advisor do? Somewhat surprisingly, I have not been receiving phone calls from worried clients, even though they have a reason to be. The truth is I’m probably more worried than they are. My most aggressive client, in terms of asset allocation, is just under 55% stocks. Most of my clients are around 35% +/- and even with that conservative mix, the accounts are still trending down. I recall during the bear market of the early 2000s, clients with less than 20% in stocks, roughly speaking, were still seeing their portfolios grow while portfolios that were more aggressive than this were seeing losses. At least that was my experience. Perhaps the most important role we, as advisors can play in times such as these is to call our clients and reassure them. Reassurance is a funny thing, though. It goes well beyond the usual, “Don’t worry. The markets will come back.” |
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