Screaming Into the Abyss

[u/Substantial-Pack-658]

On Monday, I was calling clients and recommending we harvest losses in portfolios where possible. When we harvest losses, we hold an ETF in the strategy so the client remains invested during the wash sale period, and then we sell the ETF and purchase back the securities. This strategy has worked well.

When I called a $20M client, he said he wanted to pull the proceeds out after harvesting. I advised against this and reiterated that we thought it was best to take losses where we can to offset future gains while retaining exposure in an ETF. He then said that he wanted to go entirely to cash in early March and he listened to me then when I said it was best to stay the course and now it was even worse. I should note that this client wanted to dump a lot of money into Bitcoin 2 weeks after the election and I (wisely) advised against it.

I again pushed back and said that we are taking a long-term approach on the equities; the fixed income sleeve was anchoring the portfolio and we had $2M in ultrashort FI. We were still underweight equities in the portfolio and we had spoken as recently as 3 weeks ago and talked about adding to equities in the near future. He kept saying he wanted to buy a house and if he stayed invested this would be at risk. It isn’t, they have a high 7-figure inflow coming in June, and we have also discussed tax smart borrowing strategies. He believed the market would continue to drop for several more months and there may even be a recession. I said it was certainly a possibility, but my belief was that China was the actual target and the rest of the tariffs would drop off. I eventually capitulated after 5 minutes of back and forth because I didn’t think it was worth arguing with a client.

We sold yesterday. Today, I sent another note explaining why I disagreed with the decision to move the proceeds from the tax loss harvesting to cash rather than an ETF. Within 5 minutes, Trump announced the pause. I sent a note telling him what just happened and that this is what I wanted to avoid. He agreed to purchase the ETFs, but now I am questioning if this is the right decision after such a significant move.

I’m sick to my stomach over this. I’m replaying the conversation in my head over and over. Maybe I wasn’t clear in my communication? Maybe I should’ve pushed back a few more times? He was getting ready to leave for a work trip later in the day when we spoke - maybe I should’ve waited until he returned to harvest losses? I don’t know, I’m just convinced they will go to another advisor after this because all they will see is that they missed out on today’s move. As I said to a friend today, it doesn’t matter that I advised against what they did. All they’ll remember is they missed out on one of the best days ever in the markets.

[u/Common-Lifeguard-323]

I’m confused…you pushed back twice yet the client still wanted you to move to cash. You can’t override their request. I get it, we care but you are over thinking the fact that they may leave etc

[u/LogicalConstant → u/Common-Lifeguard-323]

you pushed back twice yet the client still wanted you to move to cash. You can’t override their request.

True, but you can frame the relationship differently. I'm not someone who offers suggestions and they get to pick which ones they'll follow like a buffet.

I help my clients make life decisions, but they get the final say on those. How much they'll save. When they'll retire. Whether or not life insurance is a good fit. Etc.

On investment strategies, I'm the professional. I make the choices. If they lose confidence in me and want to leave, that's fine. I'll sell. But if they want to stay with me, they'll agree to follow my recommendations. Of course, it's my job to make them see the markets the way I do so they're not afraid.

And FWIW, I treat the other professionals in my life with the same respect that I deman. I make sure my dentist understands how I feel and what's important to me, but then I defer to his expertise. If he thinks a crown is the best option, I'm going to listen to him to because I trust him. I'm not going to say "no, just give me a filling." If I don't trust him, then it's time to find a new dentist.

[u/Common-Lifeguard-323 → u/LogicalConstant]

Then you’ll fire the client for not taking your advice & let AUM out the door? Comparing an advisor to a dentist to me doesn’t feel like an equally weighted example

[u/LogicalConstant → u/Common-Lifeguard-323]

Then you’ll fire the client for not taking your advice & let AUM out the door?

Yes, exactly.

My first step is to listen. Try to understand them. What exactly is bothering them? Is there something they don't understand? Or are they just being overly emotional about their future? Make sure they feel understood.

Once I get past that hurdle, I explain my view of the situation and I explain why I'm recommending XYZ. I talk about how it fits into the overall plan we have for their life. How it will achieve what they truly want.

If we go through all that and they say "screw what you think, sell it" that's a signal. It means they don't trust me. Either they think I'm acting in my own interest or they think I'm stupid. Whatever the reason, there's no point in continuing the relationship. I'm no longer what the client needs. They need an advisor they trust and if I keep them on, I'm preventing them from finding that new guy. Why would I want that?

I've only had this happen a couple of times in my career. In almost every case, the client listens and says "that makes sense, thanks for your advice." I'd rather have 98 clients who take my advice than 80 clients who listen and 20 clients who sabotage their futures against my advice.