Turning business down is always hard, but sometimes it might be necessary
In this special guest post, experienced advisor and founding partner of Howe, Harrell, and Associates, Sean Harrell, tells the story of a client whose goals he felt couldn’t be met.
“A few weeks ago, I was referred into a home by a retired advisor, ends up he referred me to his family. I met with his sister and brother-in-law, super nice people. The retired advisor gave me a great recommendation and the couple was happy to be dealing with someone their old advisor (and relative) trusts. Problem is that once we started talking about their goals, it was apparent that meeting their expectations was going to be almost impossible.
The couple’s investments had done quite well last year like most Canadian investments had. The accounts were almost 100% Canadian equity and averaged roughly 16% in 2016. They are currently 60 years old, semi-retired and want to fully retire in about 10 years. They had an account balance in mind that they wanted to achieve before retirement, which required a compound double-digit rate of return over the next 10 years.
I explained to them that those expectations were not realistic and that they were taking on too much risk considering they are so close to retirement and that the Canadian market is in the midst of a long bull run. I told them that their goals would be at major risk if a correction came along. I recommended they revisit their retirement goal and adjust their portfolio, reducing equities and adding fixed income.
After explaining that fixed income has a much lower expected rate of return than equities, the clients quickly turned to me and said they want to stay in equities to earn the highest possible return on their investments as they believe the current bull market “has room to continue”. I then realized I was fighting a battle that couldn’t be won. The clients were convinced that their retirement goal was realistic and that double-digit returns they have recently experienced were the norm. I left the meeting telling the couple I would put a proposal together for them.
Upon returning to the office and reviewing my notes from the meeting, I was ready to call the couple and let them know that I couldn’t work with them based on the likelihood of achieving their lofty expectations. Then I took a close look at segregated funds for the couple - they can participate in an all equity portfolio while having their principle guaranteed at age 71. It was the best possible way to aim for the returns the couple wanted while guaranteeing their principle and protecting them from a potential market correction.
I put a proposal together for the couple and went through the pros and cons of segregated funds with them. I told them there’s still a good chance that we wouldn’t reach their goal but this was the least risky way to go give it a go. The clients loved the proposal. The fact that they could take on extra risk to try and achieve double-digit returns while having their principle guaranteed was perfect for them.
While seg funds are definitely not my “go-to” solution, I will definitely keep this case in mind. Goes to show that there is not a “one product fits all” solution out there like some people would have you believe.”
Related stories:
Advisor: Why I support the ban on embedded fees
Advisor: how I build long-term client relationships
“A few weeks ago, I was referred into a home by a retired advisor, ends up he referred me to his family. I met with his sister and brother-in-law, super nice people. The retired advisor gave me a great recommendation and the couple was happy to be dealing with someone their old advisor (and relative) trusts. Problem is that once we started talking about their goals, it was apparent that meeting their expectations was going to be almost impossible.
The couple’s investments had done quite well last year like most Canadian investments had. The accounts were almost 100% Canadian equity and averaged roughly 16% in 2016. They are currently 60 years old, semi-retired and want to fully retire in about 10 years. They had an account balance in mind that they wanted to achieve before retirement, which required a compound double-digit rate of return over the next 10 years.
I explained to them that those expectations were not realistic and that they were taking on too much risk considering they are so close to retirement and that the Canadian market is in the midst of a long bull run. I told them that their goals would be at major risk if a correction came along. I recommended they revisit their retirement goal and adjust their portfolio, reducing equities and adding fixed income.
After explaining that fixed income has a much lower expected rate of return than equities, the clients quickly turned to me and said they want to stay in equities to earn the highest possible return on their investments as they believe the current bull market “has room to continue”. I then realized I was fighting a battle that couldn’t be won. The clients were convinced that their retirement goal was realistic and that double-digit returns they have recently experienced were the norm. I left the meeting telling the couple I would put a proposal together for them.
Upon returning to the office and reviewing my notes from the meeting, I was ready to call the couple and let them know that I couldn’t work with them based on the likelihood of achieving their lofty expectations. Then I took a close look at segregated funds for the couple - they can participate in an all equity portfolio while having their principle guaranteed at age 71. It was the best possible way to aim for the returns the couple wanted while guaranteeing their principle and protecting them from a potential market correction.
I put a proposal together for the couple and went through the pros and cons of segregated funds with them. I told them there’s still a good chance that we wouldn’t reach their goal but this was the least risky way to go give it a go. The clients loved the proposal. The fact that they could take on extra risk to try and achieve double-digit returns while having their principle guaranteed was perfect for them.
While seg funds are definitely not my “go-to” solution, I will definitely keep this case in mind. Goes to show that there is not a “one product fits all” solution out there like some people would have you believe.”
Related stories:
Advisor: Why I support the ban on embedded fees
Advisor: how I build long-term client relationships
