Stop Selling Returns (it’s a loser’s battle)
Copyright 2020
This is probably the most ironic set of newsletters I’ve ever done (so I’ll poke fun at myself for doing them, but they are important nonetheless).
Last week I discussed a 3rd party money manager that anyone can use who generated a 38.58% return in 2019 which would have made his fund #1 out of 548 at Goldman Sachs and #2 out of 80 at Vanguard. So, of course, and I think rightfully so, hundreds of advisors signed up to learn more about it.
This week’s newsletter is asking the question if selling historical returns makes as much sense as “selling a process” by which money is managed.
Selling Historical Returns
The industry has been selling and chasing returns for decades (stop the madness)!
1) Meet with clients.
2) Review what they have.
3) Compare what they currently have or had to what you would have recommended.
4) Close the sale.
This sale revolves around comparing past returns of one portfolio to another.
What’s the problem? Setting expectations too high!
When your sales are based on historical performance, it can be a loser’s game.
Question: Do we have any idea what the stock market is going to do over the next 6 months, 18 months, 3 years, 5 years?
Answer: Nope, but we sold ourselves to a new client based on a portfolio track record that looked good.
What happens when the portfolio doesn’t live up to those expectations? Many clients will fire you because the next advisor who came along showed them a better performing portfolio than yours and they jumped ship to chase returns.
Selling “Process” Instead of “Returns”
1) Meet with clients.
2) Review what they have.
3) Determine their appetite for risk and goals for the future.
4) Explain how future returns CAN’T be controlled.
5) Explain how risk in a portfolio CAN be controlled.
6) Have them agree to buy into the process to control risk (vs. trying to build a portfolio designed to chase returns).
7) Close the sale.
8) Do semi-annual reviews that focus on how risk was managed, NOT how great the returns were or weren’t.
3), 4), 5), 6) and 8) are different. It’s more steps, but they are needed steps if you want to retain clients.
Selling returns is setting yourself up for failure (at some point in time).
Selling the process sets yourself up for a life-long relationship with clients.
Do you have a process?
If you manage money for clients and don’t have a process, I highly recommend you get one and soon. When the next stock market crash comes, the musical chairs will begin. Advisors selling returns will lose clients. Advisors who have a process will not (especially if that process involves managing investment risk).
Do you want a process to use and follow?
What’s the best way to improve what you do as an advisor? This answer is debatable, but one thing I think we can all agree on is that a great way to improve what you do is to learn from others who have a proven track record.
The manager who was #1 at Goldman Sachs and #2 at Vanguard has a process. You know what that process focuses on? Things he can control.
What can he control? The risk profile of his strategies.
FIAs and IULs
I also highly recommend that as part of your process you incorporate the use of FIAs and IULs. Doing so will not only bolster any process that doesn’t, but it will help you retain clients by having X amount of their money in no-risk wealth-building tools.
Roccy DeFrancesco, J.D.
Strategic Marketing Partners, LLC
roccy@strategicmp.net
269-216-9978
