Real-Life Decision Making
You are a mutual fund manager. You use your training and experience to
help clients invest their money. You may have strong opinions about what is
right for your clients, but you must respect their input. Remember: it is
their money.
Mutual fund managers assess clients' investment goals and tolerance
for risk before investing on their behalf. Some clients will put everything
in your hands. Others will take an interactive approach.
The latter can be frustrating, says portfolio manager Mike Ward.
"In a way, you have to protect the client from themselves. After sitting down
with the client and setting their objectives and constraints, I convey to
them that we need to stick with our strategy, at least until our first performance
review," he says.
"Typically, all clients agree to this. But if the market turns against
them, they may get anxious and want to change their objectives. This can be
dangerous as it represents a form of market timing, a strategy we try to persuade
clients to avoid."
Mutual fund managers must be prepared to deal with a lot of different objections.
For example, you recommend a strong stock in a hot industry, but a client
has had a bad experience with a similar stock or industry and refuses the
recommendation.
A stock that seems conservative to you may seem risky to your client. On
the other end of the spectrum, a client may be so reckless that he wants you
to sink an unhealthy sum of money in a foolish stock tip. But what happens
when a client agrees to your recommendations and then panics mid-term?
Ward recently encountered a problem like this. His client wanted to pull
out all his money and put it into cash. With the stock market still strong
and his confidence in the portfolio, Ward felt this would be a mistake. "It
is definitely a dilemma when a client wants to take out money prematurely."
Even though the money belongs to the client, he has entrusted it to your
care and is expecting you to accomplish a good return for him. If you give
in to the client's fears, the money may be safe, but the client will
not reach the goals you've set together.
As a good money manager, you want your client to be successful with his
or her financial objectives. As a businessperson, you want your clients to
be satisfied with your work. Satisfied customers bring in other customers.
What do you do?