The Agony Of Recommendations

If you read the letters page this month and next month, you'll see that the only subject that produced more controversy than the June issue's editor's note was Mitch Anthony article, "Stairway To Heaven." As I mentioned last month, I didn't agree with Mitch's article, but I do think he tapped into something.

This was brought home to me shortly after we went to press when someone in the office was asked for financial advice by a relative, who was a highly successful professional with assets consisting of $6 million in money market funds and a $2 million home. The relative is in his early sixties, works occasionally on large projects that take two years and can net him a seven-figure payout. He may have one or two more projects left in him.

Needless to say, he is very concerned about the loss of principal. He's also frustrated that he must occasionally dip into his savings to support his family. My first piece of advice was to see a financial advisor, and I recommended a very good one in his area.

But upon further reflection, Anthony's notion of a portfolio that was 70% bonds and 30% equities suddenly didn't seem as outlandish as I thought one month ago. I'm the first to acknowledge that I've never gone through the hard experiences that come with your jobs, like sitting down with a recently widowed wife of a client and discussing her financial situation.

However, it's a fair question to ask to what extent should a client's attitude toward risk shape his portfolio. For most people in their sixties with $6 million in investable assets, I would think 60% equities, including many that paid dividends, would be close to appropriate, and I'm someone who believes that stocks are likely to go nowhere for another five years, creating a great buying opportunity.

Yet I'd have a hard time recommending more than 30% or 40% equities to an individual as risk-averse as this guy. Put another way, I couldn't tell Miss Daisy to drive a Corvette, even if it made sense, which helps explain why I'm not in your business.

There's a larger question here, though. Many advisors who have built this profession in many ways want it to be like a science. But either a client's risk profile has to play a significant role in an advisor's recommendations or they can tell certain prospects to go elsewhere.

Anyway, if you want to read an excellent piece on this whole subject, I'd advise you to turn to page 37, where Nick Murray completes an excellent series of articles on the topic. Another don't-miss column by Hannah Grove and Russ Prince on page 42 examines affluent individuals' attitudes towards the estate tax. It's the first in a series. On page 51, Rebecca Pomering takes a very different look at an old yardstick, the 80/20 rule, in a column that's well worth your time. I could go on and on, but instead I'll leave you with one last recommendation: Read first-time contributor Dan Moisand's article on page 101 about the most vexing subject of all, retirement withdrawal rates. The article came out of a provocative session Dan moderated at our Retirement Planning Symposium in April.

Evan Simonoff