Like many of my colleagues, I came out of a large wirehouse environment. And I suspect, like many of you, I left that environment because I could not reconcile my need to do what was best for the client with the firm’s emphasis on product- and commission-driven transactions that may have met the suitability standard but, in my opinion, did not always meet the best-interest standard I believed was more important.
Even after I started my own advisory business, it took me a while to completely readjust from a commission mindset when discussing portfolios, asset allocations and overall strategy with my clients.
I didn’t fully realize this until one day when, not long after I had made the move, I met with a client who represented one of the first sizable accounts I had acquired in my new business. I was talking about a mutual fund I wanted the client to get into and went on at some length about historical rates of return, volatility, fees and other reasons the fund was a good fit.
Until, that is, he looked at me and said, “Kimberly, you’ve given me a very good explanation of what this fund will do for my money. But I need to know what it will do for me.”
It was then I realized that I had unwittingly — probably from force of habit — reverted to “selling mode,” listing all the benefits of the product in order to convince my client to invest. But what he needed from me, I now realized, was more important. Yes, the money mattered, but he was reminding me that the money was a tool, not an outcome; a means to an end, not the end itself.
I took that moment to heart. Since then, I have proceeded from what matters most to the client. Sometimes it takes a little work to move them beyond a focus on the money to what they want the money for, but when we make that leap, I’m able to discover their real motivations, priorities and core values. Once we build an investment and portfolio strategy on those foundations, it becomes much easier to help them stay disciplined, focused and on track no matter the phase of the market cycle.
In a recent blog, I discussed helping retired clients develop
I think of this as the clients’ “purpose portfolio.” Just like an asset portfolio, a portfolio of purpose requires rebalancing from time to time. Rather than being prompted primarily by market action, however, it often requires adjustment after major life events or other circumstances that can shift a client’s underlying priorities, assumptions and goals.
I’ve discussed the importance of
For example, my onboarding conversations with “Morgan” indicated that this 60-something widow whose husband had owned a chain of successful car dealerships had a deep desire to secure her grandchildren’s college educations. On the other hand, she was intent upon not becoming a financial or emotional burden on her three children as she entered her later years. Initially, we focused on establishing a durable, ample income stream using the proceeds of her late husband’s life insurance and 401(k) combined with spousal Social Security benefits.
But after prioritizing Morgan’s personal financial security and well-being, we didn’t have a lot left for college funding — until the successful sales of two of the car dealerships produced a large influx of cash. At that point, we rebalanced Morgan’s purpose portfolio, bringing her grandchildren’s education more to the fore. By gaining an understanding of what was most important to Morgan from the beginning, I was able to help her maintain her most cherished priorities, rebalancing them as circumstances dictated.
“Canen” presented a different set of priorities. Retiring with generous pensions and savings from dual careers in the military and civil service, he was also the main support for his elderly mother. While his pensions provided for the majority of his income needs, Canen’s savings required careful consideration, as they would allow him to keep his mother cared for in relative comfort and security.
But Canen also had a deep interest in travel, born during his years of military service. About five years into retirement, Canen’s mother passed away peacefully, and soon thereafter it was time to reassess his purpose portfolio with regard to his financial resources. We established an asset mix for Canen’s savings that allowed for a reasonable amount of future growth along with current funding that has allowed him to satisfy his longing to see more of the world.
A host of other life circumstances — divorces, marriages, new careers and even financial market events — can call for a rebalancing of clients’ purpose portfolios. It’s up to us to, first, understand these purposes and how they fit together in our clients’ lives; and, second, to take the initiative with our clients when rebalancing is in order. They depend on us to know not just how to handle their investments but why they are investing in the first place.
When the “how” matches the “why” we are doing our job as trusted fiduciary advisors.
