Telling Clients No




My Sunday Washington Post Business Section column is out. This morning, we look at whether financial advisors should always say “Yes” to their clients.

The short answer is, no, they should not. Indeed, providing “best interest” advice often means politely explaining to clients exactly why what it is that they want to do is against what they should do. The advisor should explain why doing ____ is not in their best interest.

What is ____ ? Here’s an excerpt from the column that explains it:

“Everybody in finance who is paid by clients will eventually encounter one who will insist on a service that an adviser knows defies common sense and works against his or her long-term interest.

What sorts of things? These:

• Taking on more risk than is prudent.

• Buying the hot new thing.

• Participating in an expensive, underperforming private investment (e.g., hedge funds, venture capital).

• Using excess leverage.

• Following the advice of pundits or talking heads.

• Overtrading.

• Pursuing the latest media fixation.

• Speculating in commodities.

• Allowing emotions to steer investments.

• Buying low-quality, high-yield “junk” fixed income paper.

• Buying nonliquid investments (private equity, gated private investments).

• Market timing.

• Buying IPOs.

• Cherry-picking portfolio allocations.

Our answer to all of the above is no. We politely decline to engage in what all of the academic research suggests is at best a statistically bad bet.”

The full column is a bit inside baseball, but if you are an advisor it is important.


Say ‘yes’ to the financial adviser who will tell you ‘no’
Barry Ritholtz
Washington Post, May 29 2016



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