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Financial advisors are often praised for their investment acumen. Often their greatest value lies in relieving customers of their worst impulses.
Indeed, top consultants from CNBC’s annual list of 100 financial advisors have received numerous inquiries about strange, risky, or downright stupid investments during their careers – and if lent to their own devices, clients could otherwise lose hundreds of thousands or millions of dollars.
“People are still hoping for a home run – that this scheme or this idea will ignite the world,” said David Rea, president of Salem Investment Counselors in Winston-Salem, North Carolina, who came in at # 2 on the FA 100 this year. “And they can be sold.”
Long live the payphone
About 20 years ago, a longtime customer approached Ri with a supposedly winning idea: buy pay phones.
He believed that cellular communications, which then prevailed, were fashionable, and that payphones would return to fashion as soon as Americans lost interest.
The client, a retiree, was willing to invest his entire retirement account in the amount of $ 1 million in this venture.
Of course, Apple introduced the iPhone in 2007, and the rest is history. About 97% of Americans own a mobile phone of some kind; 85% of them have a smartphone, up from 35% in 2011. according to to the Pew Research Center.
Meanwhile, only 5% of the 2 million payphones in the U.S. in 1999 still somewhere today…
“It would be life-changing,” Rea said of the client. “[His account] would go to zero. “
Fortunately, Rea managed to dissuade the person from investing. The idea of a pay phone was proposed to him by a man who promised a decent profit; The hype man also had a controversial disciplinary record and was unable to provide a prospectus with basic investment information, Rea said.
All three are clear signs of potential problems.
“Thank goodness I managed to get the client off the ledge,” Rea said. “Of course, I think cell phones have caught on.”
Sometimes consultants can do things to limit the client’s freedom. animal perfume…
In the 1980s, Mark Mearsberger’s client, contrary to Mearsberger’s objections, bought hundreds of thousands of dollars worth of physical silver.
(Investors often view silver, gold, and other physical assets as safe havens during sharp selloffs in the stock market.)
“The world is ending, I need silver,” recalls Mearsberger, CEO of Dana Investment Advisors in Waukesha, Wisconsin, which is ranked # 1 on CNBC FA 100, of the client’s thought process.
“Thirty years later, he called us and said:“ I have these bags of silver coins. How can I get rid of them? “Mearsberger said.
Mearsberger found a coin dealer; after a commission of 2% to 3%, silver was worth less than 30 years ago.
Decades later, Mearsberger was able to save another client from the likely large losses from yet another hot investment. This time, it was Zoom Video Communications, a video conferencing company whose shares rose sharply at the start of the Covid pandemic at a time when people could not meet face to face.
The client was adamant about buying hundreds of thousands of dollars worth of stock under the ticker ZOOM. But there was one problem – it was wrong ticker symbol… (The correct ticker is ZM – a fact that Mearsberger fortunately noted before the money changed hands.)
ZOOM was a so-called dime issued by Zoom Technologies that has not been publicly disclosed since 2015. The Securities and Exchange Commission halted trading in March 2020 because many investors made a mistake.
Research has shown that coaching is perhaps the most important part of a financial advisor’s job.
According to data for 2019, consultants can add about 3% to clients’ bottom line through seven key services such as asset allocation, cost efficiency, portfolio rebalancing and spending strategy. study published by avant-garde, financial manager.
Photo of Alan Shine | Image Bank | Getty Images
According to Vanguard, investors make about half of this profit from behavioral coaching (helping the client stay disciplined and in control of emotions), which is the largest share of any advisory service.
However, customers often fail to see this value. Among 15 options, investors noted that “helps me control my emotions” as the least valuable attribute of a financial advisor. according to behavior researchers at Morningstar.
“The advisor sometimes appears to protect people from themselves,” Mearsberger said.
Dog parks and beer
Substandard investments aren’t necessarily all bad if investors understand the risks and can withstand potentially large losses, the consultants said.
Wayne Wilbanks, for example, is currently evaluating the viability of building a brewery near Orlando, Florida that also serves as a dog park. Most likely, he will recommend promoting investments that will generate income through a monthly subscription fee.
“It’s kind of weird and potentially risky,” said Wilbanks, the company’s managing director and chief investment officer. Wilbanks, Smith & Thomas Asset Management, based in Norfolk, Virginia, and # 41 on the CNBC FA 100. “You have to get it up and running, find members, and advertise.”
According to Wilbanks, the client will likely need to invest between $ 1.5 million and $ 2 million on the project.
“But this is a pretty profitable investment,” he added. “There is a whole world of dog parks that millennials live in.
“It was a great discovery for me.”
Ahead of 2022, the CNBC Financial Advisors Summit will bring forward-thinking consultants like FA 100 firms to hear from industry heavyweights on the state of the markets and share innovative ways to meet their clients’ needs. Register to join us December 8.