What is your perspective on working with clients to help them
make decisions and how do you make product decisions in
the private markets?
I don’t believe that an advisor can do a great job until the
client is properly educated or guided as to how to make informed
decisions based on several options regarding the ultimate uses
of their money. Products are not even discussed until I have
undertaken a lengthy process with the client.
The process starts by helping the client to define risk and then
to understand returns in terms of the relationship to risk (which is
ultimately relative to the risk free rate of return). It is very important
to define for them what the risk free rate is and what it means and
how it all relates to their financial well-being as inflation erodes
I also guide clients through a discovery process on how
they may use their money going forward versus what they are
doing today and have done with it in the past (are their assets
accomplishing what they want them to?).
This gets the client thinking about their own situation and the
reasons that money is important to them. They are then asked to
prioritize the things in life that are most important to them.
Once this and several other aspects are complete, I then go
through a brief description of five elements that I have found to be
most common to discuss with clients.
1. Risk and risk factors are the most important and involves
defining various risks we are all exposed to i.e. loss of income
due to any number of reasons and how this will be addressed.
The risk of not being able to achieve all goals and objectives.
From an investment point of view what is risk? Capital loss,
volatility? Reduced purchasing power? The people managing
money? The type of investment? How has risk affected them
in the past? Has your perception of risk changed over time?
How? What can we do to address the risks that you fear the
most going forward?
2. Return: Expectations? Are expectations realistic? Have you
attained the returns you wanted/expected in the past? Why?/
Why not? Can we control returns? Why?/Why not? What can
we do to gain as much control as possible over returns going
forward? Are there ways to help limit exposure to risk and as a
result reduce volatility and potentially heavy losses? How?
3. Fees: An open discussion about fees and what you are receiving
for the dollars spent. Are the fees reasonable? Can they be
deductible? Are they transparent? Do you understand the fees
you are being charged? Are there any hidden costs?
4. Reporting: Is it full disclosure reporting? Will I really know how
well I am doing? Why are the returns I am experiencing not
matching up with the reported returns advertised by mutual
funds? How can I measure exactly how I am doing?
5. Service: Will you forget about me once I become a client?
Who will provide ongoing service and advice? How will it be
delivered? How frequently will we meet? What will we talk
about? Who is your supporting cast?
At this point I will have a clear understanding of where I need
to go to help my client. The above process narrows the options
down fairly quickly to help arrive at a point where advice can
be delivered in a focused and meaningful manner. I can explain
how and why certain products may be suitable and connect their
options back to the guidance points noted above. The options
have to fit into an overall financial plan or strategy.
In terms of the investment function that you are looking for
from various products in the private market, what have your
clients been looking to access?
Capital preservation really became the number one objective
in 2008 and 2009 and that’s when I really grasped the idea that
my clients couldn’t accept the level of risk that they thought they
could. I had developed a foundation of understanding my client’s
risk tolerance going through the tech crash in 2000 and then
September 11. You don’t really know what a client’s tolerance for
loss is until the portfolio experiences a shock and the dollar reality
is what hits home with them. Their long-term thinking changes and
in many cases neither clients nor advisors can understand their
risk tolerance until something like that happens.
The one side that everyone has trouble grasping is the
emotional toll of what happens when they see a dollar amount loss.
And I don’t believe that it is something you can quantify on a KYC.
Investment advisors have no shortage of roles that they need
to play on a daily basis. When you think about your practice,
which did you want to improve as part of your shift to the
private markets and have any of these functions changed over
the past year or so since you shifted your practice?
One of the biggest roles for me is to be an advocate and not
just an advisor because I’m the one that is supposed to have
an understanding of how the various markets work and have as
complete an understanding of these investments as possible.
I also have to complete tax, financial and retirement planning.
I invest most of the day meeting with clients or researching matters
on behalf of clients or developing financial plans.
In general, my practice has become more focused. I have
more time to think and perform financial planning functions now
that I’m operating in the private markets. I still perform the financial,
estate and insurance planning but at the same time I’m keeping up
to speed with what is happening with various portfolio positions.
On the public side, I have outsourced the day to day monitoring
and administration of liquid assets to a portfolio manager and
“I have received positive feedback from the exempt product
that I have used with clients, because those clients are
receiving regular income that they can count on and aren’t
seeing the fluctuations in the value of their portfolio.”