Some clients view investing in simple terms. There are stocks and bonds. That’s it. They like familiar names. Years ago, I was having lunch with a client couple in connection with their portfolio review. I suggested international investing. Their response was: “Don’t you know, they are having trouble over there!” Apparently everything beyond U.S. shores was considered “over there.” How do you introduce new ideas to your client?
1. The golf course analogy. Let's stick with the international investing theme. According to Statista, U.S. stocks represent about 56% of global stock market capitalization. That’s just over half. I’ve always remembered the analogy a product area head at my former firm would deploy. Imagine if you started playing golf on an 18-hole course and after the 10th hole, were told you couldn’t play anymore! If your client says “no” to international investing, they are deciding to leave the course after the 10th hole. Who does that?
2. The tapestry chart. You’ve seen the chart showing different style and size segments along with asset classes, ranked by performance year by year. Since the boxes are different colors and the order rarely repeats, I consider it the tapestry chart. You can make the case that different categories go in or out of favor every year. If you want to try and optimize performance, you need to be invested in more than one or two categories.
3. The dinner plate. Here’s one of my favorites. Personally I like U.S. equities, especially large capitalization stocks. Sector funds, small cap funds and other categories also have their place too. In many situations, the broader categories (like large cap stocks) tend to perform better (or suffer less) than other categories with increased volatility. When talking with clients, I would make the analogy of your dinner plate in a restaurant. The U.S. stock market with its large cap stocks is the entrée on the plate. Other categories are also on the plate. They are the vegetables or the potatoes. The entrée is the reason you picked that particular menu selection. The side dishes compliment the meal. When the stock market is volatile, hopefully large cap does perform better (or suffer less) than the other categories. Returning to the analogy, I would explain “there’s trouble in the vegetables.”
4. The delicate balance. The investment pyramid usually shows the majority of a client’s money should be invested with a greater degree of security, yet the top of the pyramid, perhaps 10%, can be invested in riskier securities. Your client might not want to invest substantial amounts in a new investment category, yet they might be willing to “take a change” and risk a smaller amount of money, something they rationalize they could afford to lose. In the “riskier” category you want diversification, yet need to strike the balance of being able to make a difference if the idea works out, yet not creating a huge loss if it doesn’t.
5. The familiar names (1). Lets get back to international investing. Your client doesn’t like it. They want to stick to U.S. stocks. Can you find stocks that generate a substantial amount of their earnings overseas? It’s not tough to find a chart or list of U.S. based firms making a large amount of their revenue beyond our shores. This gives them international exposure to a limited extent.
6. The familiar names (2). Your client might be resistant to overseas investing, yet drive a German car, own a French luxury handbag and rave about a favorite foreign airline. They have an attachment to those brands because of reputation and quality. It might not have occurred to them these brands are also listed firms too! Assuming your firm has given the firms good research ratings, that could be their first step.
7. Listed security equivalents. Your client wants to buy precious metals. They have good reasons. Gold is a good example. They could buy the metal and take possession. They might buy it and have it stored somewhere. They might be able to buy a listed security representing ownership of the metal, with less hassle. You might suggest this alternative to your client. They can see it on their account statement.
People are often resistant to new ideas. There are ways you can introduce them while aligning with their comfort level.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.