Real-Life Communication
You are a mutual fund manager. When you set up a portfolio for a
client, it is only a first step. You are not only managing your client's portfolio.
You are building a relationship that hopefully will last throughout your career.
You must be ready to respond intelligently to any questions while building
loyalty along the way.
Communication skills are as important as technological
skills, says Janet Miller. She is a partner at an investment counseling firm.
"In the world of managing money, brains alone won't cut it," she says. "You
have to be able to deal with many different kinds of people. Millionaires
come in all shapes, sizes and levels of sophistication."
One of the
skills you will need is an understanding of asset allocation. Asset allocation
is a term for the right mix of investments in a portfolio to minimize risk
while meeting investment objectives. Studies have shown that asset allocation
is the most important element in a well-designed portfolio.
Generally,
younger people can handle more risk because they have more time to meet their
goals. Older people will want more stability so they don't lose ground they
can't recover. Most companies have models for determining portfolio asset
allocation at various stages of a person's life.
A 60-year-old man
came to meet with you not long ago on the referral of another client. He was
about to retire. Up until then, he had not thought much about where to put
his money beyond the local bank.
He had been hearing from some friends
about how well they were doing with stocks and bonds and mutual funds. He
felt he was ready to start getting more out of his money. His goal was a more
comfortable retirement.
You reviewed his financial and family history
and discussed his specific retirement goals. He tells you that since he has
never invested in anything but a bank before, he wants a very safe, conservative
portfolio.
After your meeting, you turned to your model portfolio for
conservative investors and made some recommendations. Since this man was looking
for safety and income, your recommendations include an assortment of bonds,
bond funds, notes, treasury bills, and a money market fund.
After he
receives your correspondence, he calls you up, thrilled at the income projections
you've made. At his next appointment, he has a couple questions. "Just how
safe are these investments? Is my money guaranteed?"
Here is a small
part of the risk summary from your recommended money market fund:
The
fund may have a high level of income volatility, but relatively little market
risk. This means the risk is minimal by industry standards.
An investment
in the fund is not insured or guaranteed by any government agency. Although
the fund seeks to preserve the value of your investment at $1 per share, it
is possible to lose money by investing in the fund. An investment in the fund
is not a deposit in the bank and is not insured or guaranteed.
What
do you tell your client about the risks?