Infomercials on late night TV have lots to answer for. You might have gotten the client call concerning buying gold coins or flipping real estate. You can’t forbid your client from spending their money as they choose. You also don’t want to imply “You don’t know what you are doing.” Or “Just follow my advice. Don’t ask questions.” What can you do when you think the client’s idea isn’t very good?

1. Tell me more. Where did this idea come from? How do you make the investment? Is it something we can buy through your account here? What background do you have on this investment?

2. Do you have something similar? Your client wants to buy gold coins. They saw this great ad on TV. You see negatives. Take a step back. View the bigger picture. If you remove the word “coins” your client wants to buy gold. You could likely make the case this is a good way to diversify their holdings. Can you buy gold (the precious metal) in their account? Is there a security (approved by your firm) that represents ownership in gold, similar to the way an index fund tracks the performance of a stock index?

3. Why will this work out? Your client saw a different commercial. They want to buy distressed houses and flip them. Ask you client to walk you through the process. How do they buy these properties? Where do you find the folks who will fix them up? How long do you need to ”carry” the property before it’s sold? It might be eye opening. Your client wants to do it because the rest of their extended family has been doing it for years.  They self finance and have their own work crew. On the other hand, your client might answer:  “I don’t know” or “I never thought about that.”

4. “Play money.” Not all of a client’s money needs to be invested the same way. The investment pyramid usually has a small piece at the top for high-risk investments. This might fit into that category. The concept means it’s a small investment.

5. You will follow it. Your client found a stock. It’s obscure, in a distant foreign country. Your firm doesn’t have an opinion. You can find only rudimentary research. This trade is unsolicited. It was the client’s idea. They must assume responsibility for following it. You cannot be expected to keep current on the company, especially since your firm doesn’t follow it. There’s a landscaping parallel. In our area, a homeowner might show a landscaping firm photos of a garden they saw in Italy. “I want these plants.” The landscaper explains those plants aren’t suited to this climate. “I will plant them as instructed, but you are responsible for maintaining them.” This is when the client should realize, it’s not a good idea. 

6. Do we have time? Sometimes a client wants to act immediately. “Just buy the stock, OK?” Other times they say: “I’ve heard (X) is a good idea. I’ve been thinking about getting some. See what you can find out” If time isn’t an issue, you might plan to discuss it in detail at their upcoming portfolio review meeting. Now you’ve had time to do some research. When you bring it up, they might say: “It was just a thought. I’m not really interested.”

There are other red flags like suspicion of insider trading. That’s not covered in this article. As their advisor, you want to be protective, yet supportive as they seek to get more involved in the investing process.

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 can be found on Amazon.