Dear Phil,

More and more I am running into potential clients who have managed their own investments and seem to be extremely “cost sensitive”.  Any ideas on how to convert them to using an advisor?


Frustrated advisor


Dealing with the Do-It-Yourself Investor


Years ago I started doing retirement income seminars for an aerospace company.  One of my first clients from this group were Jack and Shirley.  Jack had about 25% of his wealth in the company qualified plan (401(k)’s were still relatively new then) and he had managed the other 75% himself in a lineup of no load Vanguard and Fidelity funds.  Over the years Jack had also accumulated about $75,000 in Government E Bonds.  Since this aerospace company’s revenue was from Government contracts, there was considerable pressure placed on the employees to purchase E Bonds on a regular basis.  He had also accumulated about $500,000 in his outside investments (which was a considerable amount 30 yrs. ago).

As we spent time together gathering all the facts, Jack went into great detail explaining to me how he had selected the mix in his investments and the tools he used to track them along the way.  As with many engineers, he showed me elaborate spreadsheets of his cash flow projections in retirement.  He had used different inflation assumptions and different ROR assumptions.  He picked different dates of his death to see how that would impact his wife.  He ran calculations far more extensive than I would ever consider necessary in a retirement income analysis.  The bottom line is that he had done a very thorough analysis and a great job of selecting money managers.  I really wondered why I was wasting my time with someone who had done such a good job and only invested in no load funds.

Nevertheless, he asked me to put together a plan for him and Shirley.  My analysis came back with results similar to his.  After a couple of meetings confirming all the calculations, Jack told me that he was going to invest his assets with me.  I was shocked.  After we had implemented his plan, I asked him, “Jack, why did you give me your money?  You should be a financial advisor.  And, my products are certainly more expensive than what you have been using”.  Here’s his answer:

“Phil, there are a few reasons I chose to give you the money.

Although your analysis produced similar results to mine, I needed that validation.  I also wanted to work with someone who understood the calculations.  You may have noticed that Shirley didn’t participate a lot in our financial discussions.  She really has no interest in how the money is managed and certainly doesn’t want to do it.  I am under the assumption that I will most likely pre-decease her.  The last thing I want is for her to be looking for a financial planner after my death when she will be in a very vulnerable position.  It was important to me that we have a financial advisor in place long before my death.  If that means I pay more in costs now, I’m OK with that”.

In summary, there may be reasons a potential client should work with an advisor even if they are capable of managing their own portfolios.  Rarely do you have a married couple where both fall into the DIY category.  Additionally, in the retirement income market place, most retirees will either lose interest or capabilities in making their own investment decisions as they age.  Certainly they would want to have an advisor relationship well in place before this happens.


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