Town Talk
Part Two: Exclusive investment advice from financial guru, Jonathan Murray, including the top five things to look for in a broker. (Click here to read Part One with Jonathan Murray.)
Do you have a difficult time trying to figure out how to train different people to handle their money?
One of the things experience gives you is the knowledge of different ways that people learn. For instance, engineers and scientists learn very analytically. They don’t want to hear about the big picture and macro themes. They want to know how the sausage is made. For them, they want to see charts, historic evidence, and they want facts and analysis. And that’s fine. And that’s the way they learn. Other folks - say the artistic types—they learn graphically. Draw them a picture about what their money can do. Draw buckets; demonstrate to them that one bucket of their money is for their college fund, one bucket is for their retirement and one is for their aging parents. Other people just want to know that you, meaning I, know what they want.
What’s the most important aspect of a successful, good financial planner?
To listen. Once you’ve truly understood your clients’ needs, what their goals are, you repeat that back to them, “Okay, so what I understand, you and your family have this thing with money, you don’t talk about it,” or “you’ve created a particular environment, one child you feel good about, one if you give them money, they’ll blow it,” and they’re shaking their head, going, “Yeah yeah yeah”. When you reflect back to the clients what their needs and concerns are, then that’s the ticket right there. That’s the solution. Once they know that you know what they need, the providing the actual solution is the easy part. You can plug them into any investment solution. Too few investors do this. It is all about their agenda and what they want to push. “Hey, I’ve got a stock that’s selling, gives a two week high, selling with a cash flow and blah blah blah.” People don’t want to be crammed with some product from somebody that they don’t even know that well. What does that broker know about your needs and your interest? Did they take the time to ask about you and your goals? Or to ask about your risk tolerance and philosophy? All those things are so important. Much more important than the actual investment recognition. Because in the end, it’s 100% about trust. If your client can’t trust you and know that you truly have their best interest at heart, then the rest doesn’t’ matter.
So what do you tell those who are investing? This market is awful.
Now, more than ever, it’s important to step back and try, as best you can, to ignore the day to day volatility of the market and remember why it is that you’re investing. What specifically are you investing for? For example, you sound fairly young,—- you’re not close to retirement, so if you do step back and ask, “Why am I investing?” and telling yourself, “Well, I’m really investing in my 401k, etc., well, I’m investing this down the road, when will I touch that… maybe when I’m 60, 65 years old…” well, if that’s the case and you’re still in the accumulation part of your life (accumulating shares of stock), then why would you want the stocks to be anything other than low today? Where you want them to be high and at their highest, is the day that you retire. Because that’s the day that you’re going to cash them in. So whether you’re going to invest for your retirement or your child’s education, remembering the purpose of your investment will help you weather these volatile times. For the older investor—those clients who are ready to retire—perserving what they have is of paramount importance. They must protect that nest egg, and a good investor will insulate that through stock market volatility. For those people, it’s a totally different set of prescriptions than for a younger investor. For the older investor, we would recommend, much more bonds, CD’s and municipals, because the biggest risk they have is that their retirement nest egg gets cut in half, and they can’t afford that. The secret is that nobody knows what the future will bring, you can’t predict that, so as a resolve, for every client you have to make sure you’re prepared for any outcome. Older investors, therefore, should be much, much more conservatively positioned than younger investors who can withstand more volatility and risk. So even though nobody could see this recession coming to this extent or degree, if you’ve done your job properly to begin with, your more conservative investors were positioned for this.
Can you have a good gut reaction or a bad gut reaction to an investor? For instance, if you sense this investor is a shyster because of the clothes he wears, or his flashy jewelry, should you run?
Not really. You just have to be careful. Hear him/her her out first. Here are five things to look for in a broker.
- The first thing I’d do is ask, “Who are your clients? Are they people like me? Have you had experience dealing with people like me.” Choosing a financial analyst should be just like choosing a doctor. Every minute of the day he/she should be working on and helping people with your condition. That’s number one.
- Number two. I would want to know what his/her investment philosophy is. “What’s your outlook on the world, the economy, the stock market?” That can be very different from broker to broker. Ideally, you want to find an adviser with a philosophy that matches your philosophy for the relationship to work.
- Number three, don’t be afraid to ask about their track record. “How have you done for your clients? Show me some specific returns. May I have their numbers to contact those clients to see how they’ve done?”
- Fourth, ask how they’re compensated. Are they commissioned based - every time the broker calls you and asks you to do something, are they getting something? Or are they fee based. Not that one is bad and one is good. Like now, the trend in our industry is to go fee based, but there are cases where that is absolutely not the right thing for the client. For example, why should a widow with one million dollars of Exxon stock which she’s owned forever, well, why should she pay you an annual fee to babysit that stock? Most fees these days are ranged between 1% and 2% a year… on a stock like that, she’d be paying $10,000 to $20,000 a year on a fee-based arrangement… that’s an example as to how a fee based model is ridiculous. My business right now is half and half, and I let my clients pick. If that client says to me, “I want that percentage for my Exxon stock,” I’ll immediately say, “No, you don’t.”
- Fifth, ask this: “How is your compliance record. Have you ever had a complaint.” I’m happy to say in my 20 year career, I’ve never had one complaint ever. You can go to NASD.com and put in a broker’s name and get his compliance record; or you can ask the branch manager if the broker has a clean record. Compliance records can, however, be a bit unfair in our industry… because even if a complaint is without merit, if a customer writes a letter of complaint, it goes on the broker’s record… but you can ask your investor about that… and that’s fine. Chances are, they’ll be able to clear it up. What you want to avoid is an investor who has had a history of complaints.
How do you get people who don’t invest, to start thinking about investing? So, I’ll go to the kids in elementary and talk to them about not putting all their eggs in one basket. Kids are always great. “Here’s a pencil. You put all the money in that stock and it does terribly… you break that pencil. If you’re a successful investor, you invest in a number of different companies.” I show them lots of pencils wrapped with a rubber band, and I tell them, one pencil is like one stock, it’s extremely volatile, but a bunch of stocks together will have strength. They get that. Teaching children the power of compounding is exciting. I say, “Would you rather have one million dollars today or one penny a day, doubled every day for a month?” Of course they all say, “I’ll take a million dollars.” Then I show them the math. A penny doubling every day for a month, comes to over four million dollars. “Here’s why and here’s the magic, that Einstein talked about,” I tell them. “In the beginning it’s nothing, but as you go along, the shape of that growth isn’t geometric, but parabolic. So that in the first part, the early years of investing, it’s hard to see the benefit, but down the road, five years, twenty years down the road, you are earning interest on a rapidly increasing asset. So, back to that penny doubling every day… in the early part of investing you have, nothing. You have 1 cent, 2 cents, 4 cents, 8 cents, 16 cents… but late in the month, all a sudden you’re doubling $20,000 to $160,000, and then you start doubling $160,000 to $320,000, and the next day to $1.2 million.” That is the magic of long term successful investing. The problem is, as human beings, we get frustrated after a short period of time and give up. We forget that the real benefit to successful investing is down the road.
Jonathan Murray and his twin brother, David, may be the most personable, invigorating investment gurus in America, appearing on the “Today” show and MSNBC with their financial advice. And their popular book, “Two for the Money: Financial Success for the Sandwich Generation” (Da Capo Press), is now out in paperback.
Click here to read Style magazine’s original five questions on part one’s Take Five with Jonathan Murray.
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