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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.

By Gil Weinreich

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 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.

Gil Weinreich is a writer and financial editor in Southern California. He can be reached by email at


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