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14 Ways to Get Clients to Take Money off the Table

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“No tree grows to the sky.” It’s an old German saying implying high growth companies usually don’t stay that way forever. (1) However, after 9+ years of spectacular stock market growth, people might be dusting off those word ‘new normal” again. They might think the good times will last forever. Your training has taught you that the stock market often runs in cycles. How do you persuade clients to take money out of the stock market when they think it’s going to keep going up forever?

Fourteen Conversations

If the market declines suddenly, some clients will show 20/20 hindsight, conclude the decline was obvious and say: “Why didn’t you tell me to do something?” Now it’s your fault. If you remind them of previous conversations, they might even say: “Why weren’t you more insistent?” It’s amazing how short some client’s memories can be! The DJIA was 14,164 on October 9th, 2007. It hit bottom on March 9th, 2009 when it traded at 6,443. (2) This was during your client’s lifetime.

Consider fourteen approaches, some involve reallocation, others pulling out cash.

1. Rebalancing their Asset Allocation. It’s always changing, so it always needs adjustment. Your firm likely has model portfolio allocations aligned with investment objectives and risk tolerance.

Strategy: Compare their actual allocation to the recommended one. Business executives are very familiar with comparing real vs. targeted numbers.

2. Asset Class Returns. Your firm likely has a chart that looks like a tapestry of many little boxes representing performance by asset class, year by year. It shows leadership usually rotates.

Strategy: Discuss with your client how many of these boxes are represented in their portfolio. Make the case for rebalancing.

3. Global Diversification. Your client loves equities. They think the good times aren’t over yet. Mention other world markets often run on different cycles. Hopefully, there’s a rally going on somewhere.

Strategy: Learn how much the firm suggests should be committed to global investing, specifically international markets. Suggest moving some equity money from the US market into overseas markets. This would probably be done via money managers, mutual funds or ETFs.

4. Shorter Term Bonds. Clients might balk at moving from stocks to bonds in a rising interest rate environment because the bonds paying the highest rates are often long term. They would suffer as rates rise. Suggest mutual funds or managers using shorter maturities, or just buying shorter maturity bonds.

Strategy: Clients earn something as rates rise. They can later reinvest at higher returns or choose to move money back into equities.

5. Leave the last 10% for the next guy. I’ve heard one of the Rothschild’s said it, however Barton Biggs is credited with it too. No one rings a bell at the top or the bottom. Try to get ahead of the crowd.

Strategy: It’s OK to lighten up now. Let someone else take the risk going forward.

Related: HNW Networking: The Perils of Keep Up With the Jones’s

Related: Six Absurdly Common Sense Strategies for Getting Business

6. Use Stop Orders. Your client owns individual equities. Remember Stop Loss orders from your Series 7 exam? (3) You hold the stock when it’s going up, but if it starts to decline, your stop order becomes a market order when it hits a specified price.

Strategy: You haven’t taken money off the table…yet. As long as prices rise, you still own the stock. If they fall, once it hits a specified lower price, your position gets sold. It isn’t perfect. There might be a gapped opening. It brings together your client’s desire to stay invested and your caution not to ride prices back down again.

7. Tax Selling. The end of the year is approaching. It might make sense to realize some losses and shelter some gains.

8. Strategy: This becomes an opportunity to take money off the table.

9. Concentrated Positions. As a wine fan, the only thing worse than opening a bottle and finding it’s over the hill is realizing you have 11 more just like it in your cellar. Your client may have lots of money tied up in one or two stocks. If something bad happens unique to that stock, the damage can be higher than the market is suffering overall.

Strategy: At least make them aware of the risk of concentrated positions. Have an alternative.

10. Flight to Quality. Clients sometimes think the established names are too expensive. They find other stocks that are newer, or maybe thinly traded. They are hoping each will get its turn in the limelight as the big money managers discover them. These can get beaten up in market declines, especially if everyone wants to sell at once.

Strategy: Who else is in that industry with a long track record of getting through various economic cycles? Make the case to move some money over there.

11. Eliminate Margin Debt. Clients sometimes forget when positions that have been bought on margin decline, all the pain is felt by the client. The loan doesn’t get smaller. Interest drives it up. There are other problems too, often spelled out in the fine print.

Strategy: It’s prudent to batten down the hatches before an impending storm. Sell some securities to pay off the margin loan.

12. Defensive Stocks. Your client loves equities. Suggest some with the potential to do well during market declines. You can make the case institutions “need to put the money somewhere.” Although past performance is no guarantee of future results (another Series 7 reminder) you can look at sector performance in other market declines.

Strategy: Your client who wants to stay invested is still invested, just in different stocks. They might be collecting dividends too.

  1. Keeping Your Powder Dry. Your client isn’t abandoning the stock market when they take money off the table. They are building a reserve to get back in when opportunities present themselves.

Strategy: Build a cash reserve to ideally buy back in at cheaper prices down the road.

  1. Buy What You Understand. Investment products seem to become more and more complex. It can be awkward if your client loses money because they bought something neither of you could explain simply.

Strategy: Own highly traded stocks that are liquid. Try to buy businesses you have firsthand experience with and understand their business model. If your client has faith and they are well managed, they may be willing to stick with it for some time.

When times are good, many clients don’t want to take money off the table. One of the benefits of having a good financial advisor is getting the advice you need to hear.

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