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Real-Life Activities

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?