Cover Story: Obsession

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In a time when anyone can see thousands of dollars’ worth of investments come and go during a coffee break, advisors frequently have to test their long-term orientations against the client’s urge to react to sudden trends and events. Some clients are just fearful or unschooled and need hand-holding. But the most troublesome are truly obsessed.

By Gil Weinreich

Gil Weinreich is a writer and financial editor in Southern California. He can be reached by e-mail at Weinreich@aol.com.

When David B. Yeske, CFP, picked up his phone one day last year, he heard a familiar voice breathlessly announce, "I’ve got to own some Microsoft." Yeske, a principal of San Francisco-based Yeske & Co., calmly asked his client why. After too brief a pause, she blurted, "Because I am a spineless slave to social pressure."

Fortunately for this notably self-aware woman, her interlocutor was a professional advisor and not an order-taker. And that’s not only because Microsoft has lost $300 billion in market capitalization over the past several months. More important, Yeske, like any true professional, understands the difference between impulsive shopping and systematic long-term investing. It’s a difference virtually every advisor has become acutely aware of during the gravity-defying stock market run-up of the past half-decade.

"The biggest problem I see right now is the fact that stocks and investing have entered the mainstream of social discourse. People are now talking about the latest hot stock the way they talk about sports," says Yeske.

Another advisor, Steven Alan Fuld, CLU, ChFC, AEP, a principal with The Skyline Group in Encino, Calif., similarly laments, "Clients used to get investment updates in their quarterly reports. Today you check your quotes five times a day." Or they leave Yahoo or CNN.com on their computers all day long as if it were wallpaper.

The inability to resist the social pressure to buy today’s hot stocks, the ritualistic assessment of a portfolio’s paper worth—these are the defining characteristics of an all-too familiar type, the numbers-obsessed client.

This neurosis takes several forms. There are those who want to goose their portfolio a month before they open escrow on a new home. Others are peeved at their cautious, slow-motion advisor because their friends have all made a killing investing aggressively, this past spring’s slide in technology stocks notwithstanding.

And for every client who lusts after high returns there is another who gets a lump in his throat when earnings-per-share projections are lowered a penny, whose knuckles turn white when the producer price index notches down, and whose teeth rattle when the producer price index notches up. These are clients who insist on certificates of deposit because their retirement is only 15 years away.

Whether it’s volatility they fear or get-rich-quick schemes they crave, numbers-obsessed clients can make the advisor’s job disagreeable. You’re the one standing in the way of that client’s new Ferrari, presumably obtainable with an undiluted investment in the right optical networking startup listed on the Nasdaq pink sheets. You’re the one recklessly driving your client to the Crash of ’00 by adding a balanced fund to her 100% fixed-income portfolio. So what’s an advisor to do?

Screen and Weed

Perhaps the best way to deal with numbers-obsessed clients is keep them from becoming clients in the first place or to fire the problem people from the client list. "Someone who is a difficult prospect can be an unbearable client," says Steven Fuld.

Not long ago, David Yeske got an inkling that a prospective client he was talking to was a numbers-obsessed maniac disguised as an intelligent investor. The man was initially drawn to Yeske by his web site (which elegantly lays out a disciplined approach to maximizing investment performance while minimizing risk). The prospect maintained he was philosophically in sync with this approach. But in subsequent interviews, he asked for information about the history of returns for all client accounts.

More than just intrusive, the request was at odds with the philosophy that Yeske’s prospect purportedly embraced—the idea that the market efficiently prices individual securities, so rather than try to beat the market through stock-picking, use asset allocation to capture market-rate returns while managing the risk.

"Whatever the [Standard & Poor’s 500] is doing, we’re going to capture that in our large-cap asset class, and whatever foreign small-caps are doing, we’re going to capture that," Yeske told the seeing-is-believing prospect. After their third round, Yeske politely told the man he has learned over the years which clients are going to be a good fit with his practice and offered to refer him to someone else. "Whenever you do that, they cling even harder," says Yeske, who nevertheless evaded the petulant prospect’s grasp.

However diligent an advisor may be at screening prospects, there are inevitably times when the market’s swings are all it takes to expose your innocent-seeming clients for the numbers-obsessed neurotics they really are.

That happened two years ago to Robert D. Newell, CLU, CFP, principal of Newell & Associates in Westlake Village, Calif. A contented client referred his parents, who entrusted their savings to Newell just before a market downturn. "The wife got so nervous and scared, she was calling me every day," recalls Newell. Despite his many assurances, "she just couldn’t handle the market drops, nor could I give her any peace of mind, so it was my suggestion that we terminate our relationship." Newell liquidated all of the couple’s portfolio holdings and they put what was left of their funds in a certificate of deposit.

Naturally, it wasn’t long before the market got back onto its relentless march into record territory. But it was too late for these neurotics. "They were unwilling or incapable emotionally of dealing with downturns in the market," and therefore unable to stick to the plan Newell had crafted. Sadly, the couple, already in their retirement years, ended up going to their son, Newell’s initial client, for financial help.

Benchmarks are Beautiful

Most advisors are philosophical about the need to part with incompatible clients. Yeske is downright macabre. "A client who is not a good fit could become a psychic vampire who sucks all of the energy and enthusiasm out of you, robbing the other clients who are [worthy] of your time and attention."

But Yeske, the consummate professional, seldom has to fire his clients because he uses the tools of the CFP’s trade to subdue impulsive tendencies. One of those is using a proper benchmark; another is diversification. "If a client is comparing somebody’s return from owning Cisco for the past five years with the returns they’ve earned from a diversified portfolio, it’s apples and oranges," notes Yeske. One way to deal with that is to isolate the technology portion of the client’s portfolio and show him that his tech holdings, even after the recent severe damage, have done just as well as or better than an appropriate benchmark, while also underlining the advantages of his exposure to other market sectors.

For example, Yeske’s small-cap investments were recently up 40% for the preceding 12 months, versus a 9% gain for the S&P 500. Yet many of Yeske’s now grateful clients wanted to shun small-caps while large-cap domestic stocks were the asset class du jour. "Whenever something is doing well, frankly, I have to take the opportunity to gently remind my clients that maybe they didn’t feel so good about that 12 months ago, and if we had acted on that feeling of theirs we’d have missed out on an opportunity.

"The fact is that a diversified portfolio will never do as well as the single best performing asset class within that portfolio in any given year. But a broadly diversified portfolio will also never do as poorly as the worst performing asset class that portfolio contains in any given year."

Though based on logic and common sense, the principles of asset allocation and disciplined portfolio management are too abstract for some nonprofessionals. So Yeske has found an effective way to help clients make sense of their returns without fretting about the rocket-like performance of the latest tech sub-sector. He uses the client’s own personal benchmark.

"If we predicated all of a client’s retirement projections, for example, on the assumption that the portfolio is going to achieve, let’s say, a 10% average annual return in the long run, then that’s really their benchmark. When we send out our quarterly reports, for example, we include a graph that plots the cumulative growth of a sum at 10% [alongside] the actual cumulative growth of their portfolio. So as long as they’re at or above that 10% line, we’re achieving exactly what we set out to achieve. No other number matters."

Disclaiming and Dissuading

Despite such wise counsel, there will never be a shortage of clients who are deaf to good advice but attuned to the attention-grabbing numbers bandied about by the media or bragged about by neighbors and officemates. "So much so," declares Luis Rivas, CLU, RHU, LUTCF, of Rivas & Associates in Woodland Hills, Calif., "that I do as much employee benefits as I do financial planning because of it." Rivas, who has been in business 32 years, says financial planning is actually his first love, but building a practice area in employee benefits has mitigated the frustrations of dealing with numbers-obsessed clients.

"It’s so frustrating at times knowing what’s in the client’s best interest," yet having to accommodate a client’s irresponsible behavior. "I walk away from a lot of business because it sticks in my throat," says Rivas.

But even the most principled of advisors will try to make a relationship work before initiating a divorce, and Rivas has found a handy way to steer wayward clients back into the fold. If he or she is bent on doing something Rivas believes imprudent, the advisor will draw up a disclaimer stating his recommendation and that the client is acting against his advice.

Rivas says the disclaimer frequently dissuades a client from taking an unwise course. One example is a woman in her early 50’s who was some 15 years away from retirement. With a net worth of about $2.5 million in conservative investments yielding 4.5% to 5%, the client wanted to dip her toes in the market by putting $200,000 in bond mutual funds. Rivas told his client that she could be earning 8% to 10% with only moderately greater risk by spreading the money among conservative growth funds and balanced funds.

"We really butted heads on this," says Rivas. "I said this is your money and you have the last say, but if you end up putting all of your money in bond funds, I’m going to at least ask you to sign a document basically saying that this is not my recommendation, that I recommended a combination of growth and balanced funds, and that even if you lost all this, it would not damage your estate and retirement [since it was only 8% of her net worth]. I was able to keep the client because I didn’t push her to the point of insulting her." Best of all, the mini-drama of an advisor whipping out a disclaimer gave the client the perspective to overcome her inordinate fear of loss.

Paying the Price for Profit Seeking

Another often effective strategy for taming the numbers-obsessed is what Yeske calls play accounts. "If a client is inclined to want to play with individual stocks and recognizes that it’s not something that is prudent for their total portfolio, we’ll often agree that maybe 2% or 3% or maybe at the most up to 5% of the portfolio can be segregated somewhere else and they can play with it. If 3% of their portfolio craters, it’s not going to have a lasting effect on their retirement."

Joel D. Kettler, CFP, LUTCF, an investment advisor with AXA Advisors in Woodland Hills, Calif., has learned a lot about play accounts in his 13 years in the business. He says it is typically the younger, less experienced investors among his clients who are looking for hot tips or suddenly furnishing him with a list of the 10 hottest mutual funds. Kettler estimates that 90% of the people he has seen trade stocks come back to him with their tail between their legs.

One of Kettler’s clients, an intelligent if overconfident surgeon, imprudently insisted on trading a third of his portfolio during a three-week vacation. The client, who programmed his computer to trade while he was away, assured Kettler that he knew all he needed to about market timing and stop-losses. Kettler asked if he would be willing to lose all of this play money. The physician insisted that would be impossible. But the good doctor must have missed the finer points of the instruction manual, because instead of selling stocks as the market plummeted during his absence, he ended up buying stock each half-point it dropped. The hapless client ended up with over a $1 million margin call when he returned.

As Kettler puts it, "I could find out all about surgery, but I would be hard-pressed after an hour or so to take out my own appendix."

Kettler had another client dazzled by the high returns featured in personal finance magazines. The client used a significant number of maturing CDs to buy 10 hot mutual funds. Naturally, none of those funds has since reclaimed its former glory.

"They can either pay for professional advice or they can let the mailman be their advisor," comments Kettler. In this instance, the client survived his comeuppance with a restored faith in the relative merits of a balanced, diversified portfolio—and Kettler was there with a forward-looking plan for him.

In the end, that’s what an advisor is for—to help people battle their own natures, inclined as we are to fantasize about what could be, or to regret what has already occurred.

And the way to do that is to adhere to a financial plan that doesn’t require one to predict the future. Though not every numbers-obsessed client is amenable to reason, ultimately the most successful advisors are those best able to communicate the primacy of principles over preferences. u

Sidebar 1

Simon Singer Says

Simon Singer, CFP, doesn’t have numbers-obsessed clients. He doesn’t screen clients nor does he weed them from his practice. And his clients nearly always happily follow his advice. Bluster, you say? Perhaps, but as a Top of the Table member, which means he produces in the top one-tenth of 1% of life insurance licensees in the world, perhaps it’s better to listen to what Simon Singer says:

"If I show you a way to buy a multi-million dollar insurance policy and have the government give you the money to pay the premium payments, would you buy it? And did you know that estate taxes were voluntary, that long-term capital gains taxes were voluntary? Did you know that if you choose to opt out of paying capital gains taxes and estate tax, the government would give you a current income tax deduction for doing so?"

When the Encino, Calif.-based advisor, who is with 1st Global, talks like this to clients, the blind can see again, the deaf can hear again and they all praise Simon Singer, who dazzles them with options they never knew they had. Yet Singer claims no secret weapons in his arsenal:

"I don’t have any products and I don’t have any tax laws [different from everybody else], and if I’m not 10 times smarter and I don’t work 10 times harder, then why is it that we’re able to generate10 times the revenue for our practice than the levels of excellence [set by the MDRT]? The answer has to be the intangibles, not the tangibles, because the tangibles everybody has."

Singer spent 20 of his 33 years in the business doing the typical transactional-type of financial advisory services: offering mutual funds, life insurance, disability insurance, and urging clients to put money in qualified plans. His strictly financial information-gathering was based entirely on what was on the client’s balance sheet. That, he says, was a mistake. "In the old days, if I sold somebody a gigantic life insurance policy, he might buy it, but he wasn’t excited about it." But when you sell something to someone, says Singer, something in the back of the buyer’s head tells him he was taken advantage of—even if that’s not true.

So Singer emphasizes advice and he treats clients as human beings, not as balance sheets. "We insist that clients help us help them in getting absolute clarity as to what their goals and objectives are; some are financial, most are philosophical. If we get this clarity, we don’t get many hiccups as to short-term performance." And "by helping them accomplish not just financial goals but all other goals, they say "Thank you," and they are appreciative and they get excited and they typically do what we suggest they do." Hence, no numbers-obsessed clients. Just happy and cooperative clients who follow their financial plans.

"There is a lot more to people than what’s in their wallet," says Singer. "And most of the people in our business focus strictly and solely on what is in their wallet." u

 

Sidebar 2

The Balance of Power

By Chuck Jones, Senior Editor, Advisor Today

Larry Briskin, CFP, is a financial planner who will hold your hand and calmly explain how a stock market downturn does not mean financial ruin, but he’d rather not. Instead, he wants you to know you’re investing for the long term and the name of the game is balance.

Twice a week on his lunch hour, you’ll find Briskin in the penthouse of his office building in Chevy Chase, Md., just outside Washington, D.C., stretching and lifting in the gym with his personal trainer, striving to balance business as usual with his inner and outer well-being.

"This is relaxing and centering," he says after a series of strenuous reps to stretch his hamstrings. "When I walk out of here, I’m refreshed and ready for the afternoon." Today in the gym, Jon, his personal trainer, is nearly sitting on top of Briskin, helping the 53-year-old certified financial planner extend the muscles in his legs and crunch his stomach. "My body’s not as loose and supple as it was when I was younger. Jon helps keep me loose and stretched." After a series of exercises in which lean and muscular Jon, sitting atop an inflated red workout ball, coached the sweating financial consultant, the pair moved to the weight training area for 20 minutes on the machines.

While Briskin is working hard to balance his physical well-being with his professional activities, the gym is doing its part. In a sitting area between the racquetball courts and a workout room is a large-screen TV tuned to the "Power Lunch" program on CNBC, a financial news show that features stock quotes that scroll across the bottom of the screen. A few paces away is a small table with a telephone for patron use. Popping in front of the TV, Briskin scans the information and comments, "Stocks are doing well so far today," then calls his office for messages and to give an instruction regarding a client to his general manager. "I’ll be down about one," he adds. While he’s on the phone, two other exercisers stop by the TV for a quick scan of the Nasdaq.

Briskin’s fast-paced workday starts at 7:30, but his day actually begins at 5 a.m. when he rises to perform an hour of transcendental meditation—another balancing tool. "I meditate for an hour in the morning and an hour after work," he explains. "It improves my well-being, it centers me, it reduces stress."

Stress is a factor in Briskin’s working life, which often has him in the office, talking to clients and creating and implementing complex financial plans 60 hours a week. "I work with high-end attorneys in the Washington area, people with two, three, four, five million dollars in retirement plans.

"Even though I’ve trained these clients to recognize they are investing for the long-term, I still get concerned calls whenever there’s a blip in the market or a particular investment has a problem," he says. "I’ve got probably a half-dozen clients who could be considered high-maintenance. They’ve got a lot of things going on and they feel the need for frequent contact." Some of these call him perhaps once a week, whereas most of his other clients, the ones that do not tend toward panic, will wait to hear from him quarterly, annually or twice a year.

Briskin has profited from his planning, his strategizing and his hand-holding. He says he makes a "significant six-figure income" as head of Sagemark Consulting, which is affiliated with Lincoln Financial Advisors Corp. His practice grossed $455,000 in fees and commissions in 1999. This year, Briskin says he expects to gross half a million dollars. About one third of the revenue comes from planning fees, a third from insurance product commissions and a third from investment fees and commissions.

Briskin works exclusively by referral and his services do not come cheap. The minimum first-year planning fee is $8,500, and it goes up from there. "The fees are based on the complexity of the situation," he says. And it depends on how much money the client’s worth. The highest initial fee, he says, was $27,000. Annual renewal or retainer fees are a flat 60% of the initial fee. He says his is the largest by revenue of the 65 financial planners who are affiliated with Lincoln Financial in the Washington region.

With more than 300 clients on the books, Briskin says he’s working with about a hundred of them at any given time. "About 50 of those are what I call my A and B clients," he says. "These are pretty sophisticated guys. I have about seven client meetings a week. I create about 15 new financial plans each year and do substantial work with 15 to 20 renewal plans." The rest are reviews and spot recommendations.

A calm but intense man, Briskin works in a world that does not always achieve balance as a whole, but rather in the sum of its parts. Take, for instance, his office. When you walk through the heavy double wooden doors, you’re greeted by a professional receptionist in business attire. On one wall of the reception area hangs a sizable and stylish mirror. The other walls hold a few framed prints of modern art. On a table is a bust of Abraham Lincoln and a vase with white flowers, on another, smaller table, a few issues of Smithsonian and Washingtonian magazines and an elegant table lamp.

Travel down the hall and turn a corner and you’ll find a different atmosphere. You’ll find Larry Briskin’s office.

To say the man’s office is busy-looking is to understate. The small, boxy room is scattered with piles of paperwork from as many as 100 clients. To the left of the door is a stack of shelves for client binders filled with investment information "for easy access," Briskin says. "I know we have all this information in computer files, but sometimes it’s just easier for me to lean over and grab a file, especially when I’m on the phone."

Briskin’s desk is messy, his work table wobbles and the two visitor chairs barely fit. On the floor are canvas bags from one meeting or another stuffed with binders, brochures and paper, paper, paper. His office walls show the man’s attempt at dressing up—one wall is filled with professional awards and honors, another sports the framed picture of a bald eagle. On a credenza is a photo of him and his wife, Roberta.

The phone rings during an office visit and the call is dispatched to one of Briskin’s handful of staff—a general manager, a para-planner, an investment manager, an administrative assistant, or one of two summer interns. The phone rings again and is quickly handled by staff. There’s a knock at the door with a message. Soon another knock, another message. And this is June, not exactly the busiest season.

"We do 50% of our business in the last four months of the year," Briskin says. "That’s when you have end-of-year deadlines for estate planning strategies and gifting." And he picks up one or two new clients a month and juggles six or seven financial plans in active planning and implementation stages at one time.

"That’s the way it is when you’re working with high-level clients," says Silvia Stazio, a senior case designer and Briskin’s general manager. "This is a high-energy office. We’re always on the go, especially when Larry’s here. There’s always stuff to do.

"Everything we do is complex," she says. "None of these cases is simple. And we don’t have any busywork. There’s a lot of stuff going on. That’s the way it is when you’ve got clients who want to be serviced. There’s no room for error, and they like to have their hands held."

"Financial planning is a long process," Briskin explains. "With a new client, it starts with the initial phone call that takes up to 30 minutes, where I gather as much information as I possibly can. This allows me to be prepared for our first meeting, which lasts an hour to an hour and a half. It’s at this meeting that I feel the client out, get the lay of the land, see if he’s made of the right material for me to work with."

The "right material" generally means a predilection for long-term investing and a willingness to let Briskin take the helm. If both parties agree to work together, Briskin quotes the fee. This begins the 10 weeks it takes to create an individual financial plan, which is followed by a typical three to four months for implementation.

Not all clients can keep their cool and, yes, he’s had to fire the occasional customer. "There are some people who want to be active in the market," he says, "but that’s not where I’m coming from. I try to impress the long-term outlook on these people at the outset, but sometimes it doesn’t work out. I either just let them go at renewal time and not renew them, or sometimes I have to fire them. That’s happened to about seven clients so far."

Although losing the business hurts—after all, these are people who are worth on average $5 million—the client’s idea of planning and Briskin’s have to match to be effective. Most of the time, it is.

"When you’re talking about financial planning, you’re talking about people who come from a lot of different perspectives," he says. "My job is to figure out what’s going to work in a situation and resolve it to everyone’s satisfaction. It’s funny to watch, sometimes, how my role changes. I start out as financial counselor in many of these cases, but I’ll often become a sort of family counselor between husband and wife and children.

"This is the nature of close relationships," he adds. "The roles change. In fact, I now count a couple of dozen of my clients as my personal friends."

 

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