Have you seen the promos for the new CBS series “Good Sam?” One line in the ads has her saying, “When you were in charge and dinosaurs ruled the Earth.” As a financial advisor today, you might wonder what life was like when the more experienced advisors in the office started in the business.
Let’s travel back in time to the 1980s. Many of you might not have been born. There were certain behaviors and traits in place.
1. It was all about making money. People wanted an advisor who made them money. An executive I knew told me he referred his advisor all the time, but the important question was “have they made me money?” If the answer was yes, then he would refer them. That’s what the friend would ask the client when he brought up the advisor’s name.
Good because: Life was simple. Fees weren’t a big issue if clients were making money. It wasn’t just from stock trading. Getting good bonds with high interest rates meant the same to income-oriented clients.
Bad because: Advisors would be tempted to take excessive risks to perform.
Today: Managed money and a long-term focus has moved the industry away from “you are only as good as your last trade.”
2. Stocks and bonds were the major products. Mutual funds, bond funds and options were the other major product areas. Insurance agents sold insurance. Bankers made loans. Clients came to you (or you found them) because stock brokerage firms focused on their one area of expertise.
Good because: You covered one area and were considered an expert in the field.
Bad because: Prospects and clients had many needs. The products you offered might not be the ideal solution.
Today: Advisors offer financial planning, investment, banking and insurance services. All this is usually in house. They can be a one-stop shop for solutions to problems.
3. Access to information was limited. The Wall Street Journal and Barrons were the major publications. S&P sheets and Morningstar mutual fund profiles were the major research tools available to the general public. Because brokerage firms had large research departments, they had a level of knowledge only available through your financial advisor.
Good because: Advisors had something the general public didn’t. Access to information was part of the value the advisor brought to the relationship.
Bad because: It was good for advisors, yet bad for investors because they often didn’t have enough easy to access information to trade on their own.
Today: Everyone has an abundant supply of information. The challenge is sifting through it, gathering the relevant pieces together. Advisors can help.
4. You had good ideas. Since stocks were what “stockbrokers” were identified with, advisors would try to always have two or three great ideas. One was growth and another income producing. You would call clients, telling them about your idea, what made it special and why the timing was right.
Good because: Advisors knew how to pick stocks, how the market and the economy interacted. Talking about “hot stocks” was what clients did at cocktail parties.
Bad because: Account sizes were often smaller at the time, so diversification was difficult.
Today: Many advisors work with ETFs, mutual funds and managed money. Stock picking has been outsourced.
5. Advisors built positions. Because advisors called clients with ideas, they developed large positions in these stocks. People would say: “Have a hunch, buy a bunch.” One day in the future, you would call your clients, suggest they sell and move the money into your next good idea.
Good because: It was easier for advisors to stay on top of a few stocks instead of having many different stocks in the portfolios of many different clients.
Bad because: If a stock didn’t work out, the damage was felt across your client base.
Today: Advisors might have favorite ETFs or money managers. They might build positions by having some money from many clients directed to those managers.
6. Interest rates were high. During the 1980s, interest rates on municipal bonds reached 12,13 and 14%. Many clients wouldn’t buy bonds because they were convinced rates were going higher. As rates gradually declined, clients would call, asking to buy those higher coupon bonds you told them about six months ago, dismayed current rates were much lower.
Good because: Clients could lock in double-digit returns for long periods of time.
Bad because: Attractive as those bonds sound today, at the time most people thought high interest rates would last forever.
Today: Interest rates on fixed income are low. Some advisors look to total return stocks or preferred stocks for clients seeking yield.
7. The business was transactional. Advisors were paid on the amount of business they did. You needed to generate transactions in order to get paid that month. Some advisors were active stock traders because they were good at it. Others were not, which led to accusations of churning. Compliance departments would look at the dollar volume of commissions generated vs. the dollar size of the account.
Good because: You were constantly in touch with clients, sharing your ideas. The client who bought one bond often bought more and more.
Bad because: Overtrading and churning was a real risk.
Today: Many advisors utilize managed money and asset-based pricing. This puts both parties on the same side of the table.
8. Everyone was a sole practitioner. Teaming was very rare. There were instances when a senior advisor would bring the next generation into the business. Many advisors didn’t plan on retiring. There was no channel to “sell your book.”
Good because: You got good at performing all the functions. You knew how to prospect, pick stocks, review performance, sell insurance and trade options.
Bad because: The turnover rate among new advisors was very high.
Today: New advisors might enter the business as sole practitioners, team members or bank-based advisors.