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Asset Preservation Advisors




City:Atlanta

State: GA



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APA’s philosophy is to work closely with our clients to develop an in-depth understanding of their unique needs and objectives. We then customize a municipal bond portfolio that best meets their specific goals and needs. APA manages high quality municipal bond portfolios in four strategies: Short-Term, Intermediate-Term, High Income, and Taxable.

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Financial Advisors and Risk Tolerance: Interview with Gail MarksJarvis, Part Three

One of the bedrocks of a solid financial advisor-client relationship is an understanding of the client’s risk tolerance, and it is here that financial advisors may be doing their clients and their own business a disservice, Gail MarksJarvis observes.

| BY Donald Liebenson

We conclude our conversation with multi-award-winning Chicago Tribune personal finance columnist Gail MarksJarvis, author of "Saving for Retirement (without living like a pauper or winning the lottery)," just out in an updated and revised edition.

 

Trustworthiness and transparency are the two factors most cited by affluent investors in choosing a financial advisor, according to ongoing research conducted by Spectrem’s Millionaire Corner. One of the bedrocks of a solid advisor-client relationship is an understanding of the client’s risk tolerance, and it is here that financial advisors may be doing their clients and their own business a disservice, Gail MarksJarvis observes.

Risk can make investors skittish, but it is an important component of building wealth. Millionaires cite “taking risk” as one of the top factors contributing to their financial success, Millionaire Corner wealth level studies find. But at the same time, Millionaires rank “the level of risk” as their top consideration when selecting an investment. Roughly half say “it is more important that I protect my principal than I grow my investments,” while one-third say, “I am willing to take significant investment risk in order to earn a high return on my investments.”

“During the financial crisis, a lot of people were calling and saying, ‘Get me to a financial advisor who will not lose my money,’” MarksJarvis told Millionaire Corner. “I had to break the bad news to them that any advisor who has your money divided up into stocks and bonds--and that’s the prudent to do--at some point you are going to lose some money. (Many advisors) don’t really explain it. (They take the attitude), ‘I’m brilliant, I’m going to take care of you, and you’re going to be fine.’  I think that came to bite financial advisors during the financial crisis because they had portrayed themselves as these gurus and they didn’t tell people that there were going to be times when they are going to lose money.”

It would serve financial advisors better in the long run, MarksJarvis said, if they alerted clients on losses they could incur. This would be one way to gauge their risk tolerance. “I recommend financial advisors tell their clients, ‘The market’s been good, but look at what could happen. Imagine your $10,000 turning into $7,100 and you don’t know if that’s going to stop. Do you feel okay with that?’”

If initial discussions between financial advisor and client reveal that the client believes such a loss is too scary, “then you adjust the portfolio at the outset so the losses won’t be so bad,” MarksJarvis offered.

Bear markets have to be part of the discussion and not glossed over, MarksJarvis said. “If you have these open discussions then when the hard times come, the advisor can turn to their client who is running out the door thinking their advisor is no good because they are losing money, ‘I told you what could happen, but look at how we have invested.”

How can financial advisors help investors find their place along this risk-tolerance continuum? Be proactive, MarksJarvis tells financial advisors. “What I saw a lot of during the financial crisis was advisors hiding and that was the worst thing to do,” she said. “Their client was in a panic. Think of what you do with a good friend or a spouse. If at their really worst moment you were nowhere to be found, they might m think, ‘I don’t know if I can rely on them in the future. That’s what happened to advisors and there was a huge churn with people dumping them.

“The conversation has to take place on the front end about what (losses in dollars) can you really stomach. If initial discussions between financial advisor and client reveal that the client believes such a loss is too scary, “then you adjust the portfolio at the outset so the losses won’t be so bad,” MarksJarvis offered.

Half of Millionaire investors surveyed by Millionaire Corner say that a financial advisor’s failure to be proactive in contacting them would be a factor in their decision to find a new one. “Advisors shouldn’t be waiting for their clients to call,” MarkJarvis agrees. “They should be on the phone with them and asking how they feel.  Some people might not want to offer that their upset. The advisor should say, ‘I’m talking to a lot of people and they’re a little concerned right now. Are you concerned?’  Then the advisor can talk them through it and reassure them.”

A component of risk tolerance and financial security is saving, and saving early, MarksJarvis emphasized. “This is absolutely critical,” she said. “I tell people not to get concerned about some big target in the future. Let’s say you’re saving $100 a week. Raise it to $105 a week. If at the end of the month you look back and you had some fun that month and you’re paying your bills, raise it again.”

MarksJarvis also encourages people to act on their good intentions. “Go into the office and increase what you are going to put in your 401(k), or change the allocation, or go to a brokerage firm and start an IRA,” she recommends. “I want people to get some basic information (on their own) in the first place so they can talk to an advisor better, and then if they don’t think they can do it on their own they can (consult with one).

“Get the help you need so procrastination doesn’t stand in your way,” she said.



About the Author


Donald Liebenson

dliebenson@millionairecorner.com

Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.  

A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.