If there is one constant in the world of investing and financial advice, it’s that there will always be a seemingly unending procession of “next great things”. Human progression being what it is, there have been some incredible opportunities for people to be rewarded for investing in innovation. However, for every “home run” like Amazon, Google, Microsoft, Ford, and McDonald's, there are just as many (or more) missteps, such as Enron, Long-Term Capital Management, Theranos, and Pets.com (to name just a few). The trick, of course, is knowing which is which, and (unfortunately) there’s just no real way to tell at the early stages. But that doesn’t stop the barrage of messaging that the public is exposed to across a plethora of media channels, telling them that they need to load up the proverbial boat in the next big game-changer and industry disruptor. And for financial advisors who (inevitably) start fielding client inquiries about such things, the question arises: what is the best way to respond when clients show interest in new (but still unproven) investment opportunities?
In our 65th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the reasons advisors are so often skeptical of new investment opportunities, how they can communicate with clients as their views evolve, and how advisors who may have previously been too dismissive of a client’s interest in a new investment can rebuild any trust that may have been lost.
As a starting point, it’s important to acknowledge the fact that people of means are frequently targeted by less-than-forthcoming salespeople with investment opportunities and products that are often too good to be true. And in an effort to be expeditious with a client’s time, advisors frequently develop heuristics to quickly filter out investments that are too new, unproven, or just plain illegitimate. However, it’s also the case that some of those opportunities do turn out to be worthy of further investigation (as was the classic case with pioneering internet stocks in the ‘90s). Which means it’s not only challenging to screen out those too-early investments… but can also be a challenge to communicate to clients who expressed interest in a new investment that was too speculative or risky if/when things may have actually changed!
In such cases, it can be helpful to reiterate that part of an advisor’s job is to manage their investments according to their timeframes and risk tolerances and in a way that aligns with their long-term goals and core principles. From there, advisors can walk clients through the process of what it takes for something to be a qualified investment opportunity, and why the fundamental risk/reward calculus may have changed. And for advisors who feel they may have been too quickly (and emphatically) dismissive of an early stage opportunity, it’s important to apologize for being short and then follow up with an explanation of the firm’s criteria for investments, and why thoroughly researching every emerging opportunity that comes along is an inefficient (and expensive for the client!) use of time.
Ultimately, the key point is that there will always be a ceaseless parade of next great things, and regardless of whether or not they pan out, all new and innovative investment opportunities have some level of speculation and risk. And while there is a place for speculation and risk, it’s an advisor’s job to ensure that changes to a client’s investment portfolio align with their values and goals. Because, at the end of the day, clients who ask their advisors about a new opportunity are likely skeptical themselves, and are (deep down) looking to be either validated or cautioned. And when it comes to clients who lobby hard for every new thing that comes along, and push back on their advisors for taking a more measured approach… then the client may not end out being a good fit for the firm if always investing in the next new hot idea is really what they want?
***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.
- Kitces & Carl Ep 18: Talking Clients Off The Ledge From ‘Scary’ Markets
- Nick Murray
- Dutch Tulip Mania
Kitces & Carl Podcast Transcript
Michael: Well, hello there, Carl.
Carl: Hey, Michael. How are you?
Michael: I'm doing well. I'm doing well. How are you?
Carl: Things are very good, yeah.
Michael: So you've got a new setup today? So getting further settled back in the U.S. here?
Carl: Yeah, so this is at my house and normally I'm at the office but today I needed to be at the house, so this is... Yeah, there's a mystery door back here. We won't talk about what's in there, but it's a mystery. So, yeah, getting a little bit more settled.
Michael: Fantastic. I hope that means as you get settled into the house that the blue couch will be returning soon.
Michael: We've missed it. We've missed it.
Carl: I thought you might bring that up. Yes, the blue couch arrived yesterday from London.
Carl: One of the only things that wasn't damaged in the shipping container, which is a whole other story but, yeah, the blue couch is intact.
Michael: Fantastic. All right. We will look forward to revisiting the blue couch soon.
Carl: Maybe, yes.
Michael: Maybe. Maybe. We'll see. We've been getting... The listeners have been contacting us, no joke, asking, "Where's the blue couch?"
Carl: Well, here's a funny story. I was on another podcast yesterday and they were like, "Hey, hey, wait, wait. Where's the blue couch that we've heard?" I'm like, "Seriously? Seriously?" My wife is so happy. New Zealand, London, Utah, the blue couch lives on. It's all good.
Michael: Fantastic. Fantastic. So what do you want to talk about today? What's on your mind these days?
How Should Advisors Respond When Clients Ask About An As-Of-Yet Unproven Investment Opportunity? [1:40]
Carl: That's such a good question. The one thing that's been really... There's a bunch of things I'm thinking about but one thing I've been really fascinated to watch, and I always feel like I have to be careful around this subject but let's not be careful, let's just dive in, is how do you... So there's a new investment out there in the world, like there always is, but there's an investment now and for a minute it's going to go unnamed because I think we could actually leave it unnamed to have this discussion. But it might give us more context to name it in a minute. But there's a new investment, everybody's talking about it. Right? All the people, especially the cool kids and certainly all the youngs are.
Michael: And that means all the media as well, so all the talking heads.
Carl: Yep. Yep. So there's a new investment and these things creep up and it reminds me a little bit of '97, '98, '99 sort of internet stuff creeping up. I have the same kind of feeling. And by the way, I do not... I'm not interested in talking about the merits of this investment. Right? When I say "the internet," I'm not saying, "Oh, it reminds me of the internet. Remember how cute that was and look how big it was." I'm not saying that. I'm saying it's on everybody's minds and what I'm mostly curious about, this is why I want to make sure we get the nuance right here. I'm not trying to be careful. I'm just trying to be precise. Is how easy it is to appear out of touch and uneducated. So this fine line between saying, "Stay the course. Stay the course."
Michael: You mean as the advisor to appear out of touch or uneducated.
Carl: Exactly. So this fine line between, "Stay the course. Stay the course. Stay the course," which is the right answer. It's not the right answer 100% of the time, but it's the right answer the majority of the time. Right?
Carl: So that fine line between that's our job but this need and this risk of appearing out of touch, dismissive, and I think maybe even worse... Well, those are pretty bad. Out of touch and dismissive are pretty bad. And then uneducated. So how do we deal with this with the investment that shall not be named but is now going to be named? How do we deal with this with cryptocurrency, blockchain? And that's the underlying technology. And please, for everybody who knows their way around this world, we're not going to get all technical about the underlying technology or the investment. We're not talking about the merits. We're not saying, "Is Bitcoin Amazon?" and we're all being dismissive and screw it. That's not what we're talking about. What we're talking about is how do we communicate with clients in a way... Because I see this on Twitter a lot. I see this in the public sphere. Just like, "Stupid, stupid, stupid," is sort of what I feel like people are yelling. And I think that there's a risk there. And even if it's not something... If this is not technology that's going to change the world, and I'm not arguing that about blockchain, but the internet changed the world. And back then lots of us were like, "Stupid, stupid, stupid," dismissive, dismissive, dismissive about...
Michael: Dot-com, who pays 100 times sales for a product, for like a company with no profits or 100 times users for a company that has no product or profits. Yep.
Carl: Right. And rightly so, right? And again, I don't want to get into the merits of it but I remember having debates with people about how silly Amazon was, and it was almost the exact same debate as how silly Pets.com was and one of those was right and one of those was wrong and we don't need to beat ourselves up for not knowing at all. I still think you make the decision based on a process that's called "diversification" and all of those things still apply. But what I'm more worried about is the inability to say, "Oh, it sounds like you're really interested in this, Michael. Let's talk through it. Let's analyze it as an investment and then more importantly let's see if there’s more there instead of just, "Stupid, stupid, stupid." And that's more what i'm interested in talking about. Does that make sense? That was kind of a long preamble.
Michael: Yeah, it does. So there is some weird ironies to me about the dynamic as an advisor when clients get pitched on...I'm just going to say "stuff" very broadly. Legit things, not legit things. Particularly not legit things. There's a trap I find that we can go through, that we can get stuck with as advisors. It takes a salesperson 10 minutes of pitching to get a client wound up on an idea and it takes us hours and hours and hours to research and explain it and debunk it. And it's kind of crappy and unfair. The pitch people get wound up in 10 minutes and it takes us hours to talk them down again, to do the research, to do the diligence, whatever it is.
Carl: It's asymmetric.
Carl: Right? We're just on the wrong side of the history of that discussion.
Michael: Yes. And I think one of the things that it does to us, rightly or wrongly it's just part of that dynamic, is I think it tends to ingrain in us sort of a gut-level style, "That just feels like B.S. I'm just shutting this down now." Whether it's my client that comes in and is like, "I heard about this thing from my neighbor where you can get super-safe bonds that pay 11%." And I'm just shutting this down now. "No, we're not going to spend three hours analyzing and debunking it." Yeah, I'm just basically going to be dismissive and kind of come at you with the hammer of shutting this down because I know what the answer's going to be. It's a waste of everybody's time and efforts to do all the analysis for this so I'm just going to be a little harsh and say, "This is B.S. We're moving on." And there's some combination of too good to be true investments, too questionable, too fuzzy, too unknown, too shiny objects. It gets ingrained in us because, frankly, 99% of the time that's what it turns out to be. And it's so asymmetrical it's not really a good use of anyone's time to have to spend all these hours analyzing and debunking something that you "know" is going to end up being debunked.
Carl: Hey, one quick thing on the "know," history has proven to you that you've actually been right, I don't know what the number is, but the majority of the time you're right to just slam that shut, forget it, yep, keep going, keep going.
Michael: So I feel like that gets ingrained in us for some legitimate, reasonable, good reasons. Between sort of the cruel asymmetry of it, trying to be expeditious with our time, the client's time, with what I'm going to bill the client for all the time that I'm spending with them, just years of advisor experience, "I know how this story turns out. Let me save us some time." But, sort of asterisk, but sometimes it's not totally B.S. Right? And so then I find there's this sort of evolution that happens where it's like, "Oh geez, I guess I actually really do need to learn about this and get up to speed." And that's hard, right? There's an intrinsic, this is a harsh word but it's in the investment world, there's sort of an intrinsic capitulation of, "Okay, I guess I got to walk that back a little. We're at least going to take a look at this." Now, you might take a look at it and then still dismiss it, but you had to move it up the scale to investigate. At some point it may even move further and it's like, "Well, now I actually think I have to reconsider being dismissive of this. Maybe this actually is a thing that we really do need to consider. It's turning out as more legit than I thought it was, right? Pets.com and all those other dot-coms that basically had no business model is B.S. but, wait, I think this internet thing is going to stick around and a few of these companies actually seem to be changing the world. This Google thing might actually be working out and these Amazon guys are hanging around. Maybe there's something here."
We have to start reconsidering and then eventually we get to the other end of this where maybe there's some subset of things that we recommend. Right? It turns out this works. Maybe not all of it was valid but we found a thing that's actually an okay way to invest this idea. Maybe it wasn't the original 11% bond you've heard about from your neighbor but it represents a new kind of investment thing then there actually is a legit version and we're going to do one of these. And we get there and it becomes part of the mainstream.
But I think the interesting part of that, including I think especially what you're highlighting here is it's really hard in the position as the advisor when you are doing the initial, "No, no, no," dismiss, dismiss, dismiss phase for what might be a lot of pretty legitimate, pretty good, pretty ingrained, pretty experienced, wizened reasons. And then it turns out that maybe you need to handle this differently. And that's something that gets really hard really fast. Right? It's hard for us. There might sort of be an ingrained you have to admit you were wrong or that you're reconsidering, you risk losing face with the client depending on how you sort of pushed back on this in the first place. We get our own self-confidence issues. There's a lot of messiness I think that comes up when you get that subset of things that are punching through where this conversation crops up. And to me, not to necessarily talk about is cryptocurrency the future, is Bitcoin the future, but I do think it's an interesting case of one example because FPA had just recently put out their "Trends in Investing Survey" of what are advisors thinking about adding a client portfolio and so they've been asking about cryptocurrency for years now. And every year was like 2%, 1%, less than 1%, 1%, rounds to 0%. Last year was actually so low it rounded down to zero. And so it's been like 2, 1, 0, 1, 0 and then this year 26% of advisors are now saying they're thinking about making allocations to cryptocurrency in client portfolios, this giant tidal wave shift all at once which to me is sort of a version of that investment phenomenon of what capitulation looks like where everybody starts changing their view all at once.
And again, not to say it's good or bad or it's faddish or this is the bad version of capitulation, the good version of capitulation. Not here to have that conversation but just the phenomenon of how do you get around to changing your views, can you change your views? How do you communicate to clients when you're changing your views? And I think that's the good focus, particularly here. How do you start bringing this conversation back to clients in a manner that isn't a, "I was wrong. I'm eating crow." Or do you actually just go, go ahead and come back to clients and say, "I was wrong. I'm eating crow. We're going to look at this after all." So how do you approach those kinds of conversations. How do you do it?
How Can Advisors Communicate That A Previously Dismissed Idea May Be Worth Considering [13:45]
Carl: Yeah, yeah, yeah, I love this topic just because I think it's so interesting. And just listening you describe the problem, I was like I'm always thinking how do we do more of our work in public constantly. And hearing you describe the problem, I was like, well, that's exactly how you could walk a client through it. Here's the dilemma. And especially with crypto right now and it seemed to me the internet the last time I remember this, but there are small versions of this all the time, like when you have a flare-up and...
Michael: I think that there's a lightweight version of this with real estate in 2006, 2007.
Carl: It turned out to not be a lightweight version, right? But you've got people who... And crypto particularly has a zealotness to it, like a zealousness. So you have people who... And I've got lots of really really smart, wealthy friends who... I don't mean I have lots of those. The few that I know are very... What I mean is there are people, a good chunk of people and apparently 26% of advisors who are now interested in this who are convinced it's going to be a major thing and then when they show up and ask us, they call, they kind of know what's going to happen when they call their advisor. They kind of already know they're going to get sort of just told.
Michael: "Carl, really?"
Carl: "Seriously, what have you been reading?" This is what I used to say. I used to say constantly it's like I remember one of my clients, Rick. I was like, "Rick, what have you been reading? I'm sending the investment pornography police over to your house right now." I remember because Rick was like, "Dude, you're always telling me what not to read. Would you please give me something to read?" That's how the my weekly letter started. So I think we're at risk of... So they get up the guts to call us. They literally can't believe that we haven't already approached them. Then we tell them, "Stay the course. Stay the course. Stay the course." I think that's a real risk. And so what I would love to maybe talk about is the way you walk through, how you are thinking about it in your own head, the way you framed up the question, that's so much better than, "Stupid, stupid. Rick, what have you been reading?" What's so much better is, "Hey, Rick, can I walk you through? These things come up every once in a while, and you know me well enough to know that I have a process of thinking about these things. Anytime somebody asks me a question more than once, it goes into my head and it bounces around sometimes for 10 years. But I have a process. Here's how we think about these things."
Walk people through your thinking about it. So it could be something like, "These things come up and we've got a couple decisions we have to make. Are they valid investment opportunities?" And that's not what we're here to talk about but that's a conversation with the client. Are they valid investment opportunities, period, for anyone? Then we've got to go through the same process we go through with every investment we do. Are they valid investment opportunities? We run them... Basically describe your manager search and selection process. Right? Your investment search and selection process. So yeah, you know what? It's so much better to hear from a client, "Hey, Rick, you're not the first person who's called about this." And believe me, I lost a client because I didn't do this and I remember, Terry, he was like, "You always just tell me to never..." He didn't know that we had done all the research. He just heard the dismissive part. And so walking him through and saying, "Hey, you're not the only person asking about this. Let me walk you through how we think about it." Right?
And that could even be like, we haven't done the asymmetry part yet. It could be what you describe. Look, some of these things come up and every time I go down the rabbit hole it turns out the same. It always is, "Stay the course. Ignore that. It's noise." And so I actually have to kind of keep track of these things and decide at some point they move from noise, noise, noise, it's kind of silly to, "Huh, I'd better understand that." And we're just getting to that, "Huh, I'd better understand that," point. Right? And we're never going to be the first ones in on these because I don't think that's why you hired us. Because for every 10 of these, for every 1 that works, there's 10 that you never hear about again." Bank on yourself. Whatever, you know what I mean? So I think just describing the process, knowing that you're thinking about it is so much different than, "Oh, that's silly, silly, silly, silly, silly, Michael. That's a really silly question."
Michael: I think you make a powerful point to it. The challenge to me around that conversation, even including the process, like I don't have a problem explaining the later stages of process. "We've done our analysis. Here's our view on it. Of course we continue to take in new information. We may change over time but we've done our analysis and our current view is not to invest here." I think the harder part, that's what we do when we get right to that stage. Okay, it looks like this thing's sticking around and legit enough that I'm going to start going deeper on it and then we can decide how we communicate it to clients.
The hardest part I find, the trap part is when we're still in the early asymmetry phase where...I'll just say it. The most rational business efficient response, as an advisor is to be pretty rapidly dismissive because I just can't do the thorough in-depth analysis for every B.S. thing that gets thrown at my client, and there's a lot of B.S. that gets thrown. I'm not saying crypto is but there is a lot of B.S. stuff that gets thrown.
Carl: And it might be.
Michael: So there's a certain level of gut response thing that gets built in. The hardest part to me is when you did the initial dismissive things for lots of good reasons and now that's changing. And so I guess to me there's sort of two parts of this. There is how do you set up that conversation differently in the first place? And I think you framed it really well because you can talk about the process and to me, one of the most important parts of what you said was, "Hey, we're not always going to be the first firm that invests in the latest...I was going to say "fad" but fad's dismissive. The latest hot thing, the latest thing, if it's really the next thing thing, it's going to have a lot of room to run and a long time and we will evaluate it in due course but we're not necessarily jumping in on the next thing really early because that's also really risky and I think you hired us for a particular reason, which is usually not jumping in on the next hot thing that might not turn out to be hot and might blow up. Right? In fact, there's probably a reason why you, Mr. and Mrs. Client, called me for my views on this instead of just going and doing it without asking. We both probably know deep down you're kind of looking for me to either reinforce what you're doing or talk you out of doing it so here I am talking about doing it."
So I think there's an interesting angle of just have that conversation and it's okay to say, "Look, we require things to get to a certain level of time awareness, momentum, number of people are asking, however it is you want to phrase it, like the threshold before we even start doing a lot of additional research on it. Because at the end of the day, there's too many of these things that don't work out and if I research every single one that every single one of our clients asked about, we would have to charge you more. No joke. We would have to charge you more because it takes a lot of time to analyze all these. So yes, we're monitoring, yes, we'll look at it, yes, we'll evaluate it in due course. No, we're not recommending it here. And if you really want to always be investing all your money in the next latest super-hot thing, this probably actually isn't even a good fit in the first place.”
Carl: Yeah, yeah. I think...Let's just hang there for a minute and then we'll get to the how do I kind of change my mind idea. But I think there's a big difference between being dismissive and describing the process you go through even early. Right?
Michael: Describing the process of why you are about to be dismissive.
Carl: Yeah, yeah.
Michael: "Otherwise I'd have to charge you more." That's just the reality.
Carl: Yeah, even that, I think, yes, we totally can say that but we can also just simply say, "Look, it sounds like this is really important to you. And by the way, I've read..." Just acknowledgement that you've read or you've seen it too. "Hey, I've seen that bouncing around on TikTok as well, on the news. And so it sounds like it's really important to you and I've seen it enough that, look, here's the reality. Almost all of these things that kind of bubble up, almost all of them are mistakes to invest in. And I just don't know yet." And it comes back to a principle. I think it's always important to come up...I'm actually not making a claim that the internet or that Amazon is a bad idea. I don't know. So we can insert now, "I'm not making a claim that Bitcoin, cryptocurrency that there's not something there." In fact, I would be tempted at that point to say, "In fact, it kind of looks like there is something there. But I don't know. And so just believe me that we're kind of... And I also don't think you've hired us for that. Because the principle that we want to come back to is diversification and protecting and you meeting your goals. And last time we talked, you told me that you wanted to spend time outside with your family and servicing your community, your church, and then we build that portfolio."
It's the same scary markets conversation. It's just called greedy markets conversation. We just pull you back and then we say, "Look, what I want you to know, this is part of our job. We think about emerging things and ideas. We're not always, 'No, no, no, no.' If things change we're completely okay with making a change and you'll be among the first to know. And don't hesitate. I want you to feel like I'm a sounding board. Call me. Let's talk about it," because I've lost clients because I didn't do that. It's just purely just acknowledgement and empathy. "I understand why you might be interested in that and we don't know and I don't think that's why I hired you and back to purpose, goals, portfolio, you're in the right place. If it's okay with you..." That's my favorite line. "If it's okay with you, what if we just stick with what we have for now and we keep this on the sort of list of things that kind of bubble up." I love the, "If it's okay with you." And I also, in that same sentence I love to use, "I would have no problem with." "If it's okay with you, I'd have no problem just sort of staying with what we've got now, sticking with the plan that we built and then knowing that we're thinking about this." "If it's okay with you, I'd have no problem," returns a little bit of a sense of control to the client and then that sets you up too for the later discussion of, "Hey, remember when we talked about this a couple months ago or a year ago or whatever?" So that's how I would... It's so much different than the way I used to do it, which was much more... And I love Nick Murray but it was much more just... Nick Murray. That may work for people and, please, if it works for you, keep doing it. I'm just saying for many of us, it works a little bit better to just have a little bit of empathy, greed with empathy, return to the plan. Greed with empathy, return to the plan. It's like greed with empathy, describe the process, return to the plan.
How Advisors Who Have Been Dismissive Of Clients’ Ideas Can Backtrack [26:12]
Michael: So now the last part of this that I am curious for your thoughts on, for all of us who did a little more of the dismissive thing for, again, what I think were often very good reasons, the asymmetry and all the rest, but we did the dismissive thing, maybe it was a little harsh Nick-Murray-style, we got our reasons for it. I'm not trying to second guess anyone around it but now the mood is shifting, maybe this is a thing that's sticking around. And all of the sudden, as an advisor, I'm in this awkward place where I was dismissive, I was dumping on this. Maybe I was comparing it to tulips, whatever. We've had a lot of different ways that we've been dismissive of the trend. So that's been out there. I know more than one advisor who has very emphatically made that point. So again, not to say it is or is not the tulip, if you are an advisor that's in that camp of saying, “Okay, I'm moving past the just dismiss phase. I think I may have to get into this further.” Or “I'm not necessarily recommending yet, but I got to get into this further and reconsider, and I'm afraid I'm going to look really bad in front of my clients because I've been so dismissive and now I'm changing my mind,” what do I do? Help me, Carl, what do I do? Help me, Carl, you're my only hope.
Carl: No, look, I don't know that I have much but I have found that always, always, always, especially, okay, the way you painted that was that you were absolutely dismissive, much like the way I was.
Michael: I think a lot of us are in general, whether it's crypto or whatever else it is. If you've been doing this for awhile, as you said, you've seen a lot of these and most of them actually do turn out to be bunk.
Carl: Yeah. And so let's say now you've actually been dismissive and you're saying, "Hey..." Amazon would be a great example. The internet companies that survive, there's a pool of them that survived and they're really really important and I was dismissive of all of them. So how do you handle... I think to me the single best way to do that is to be honest and walk through, "Look," and I would walk through the process again. For some very good reasons we're relatively dismissive of new ideas that sometimes even could appear like fads in the news. In fact, we sometimes call them... It's not the apocalypse du jour because we're talking about things turning out well but there's a new one of these every day. And it's not really every day but all the time, especially now on Instagram, TikTok, all of that sort of stuff. Sometimes we can come across as relatively dismissive and I may have even been dismissive of this idea but we're starting to see this...and, again, depending on how you manage money, this is an investment discussion. But I could see it very easily creeping into the investment piece of, "Look, this is now being included just because of the nature of the investments they've grown into our portfolio allocation. So it's important for you to know you now own some of Facebook, Amazon, Instagram, the whole list, Google, the whole list. You now own them by nature of our investment process so those are being included." So I don't think it's a problem to say, "Look, for a bunch of really valid reasons, which I'm happy to discuss at length with you if you want me to, sometimes we can come across as dismissive and I apologize for that because it's not really what I mean. And the reason that is..." And then you can go into some of those discussions. Nine out of 10 of these things turn out to be silly. Asymmetry of the discussion. The whole thing.
And then hopefully we fixed that. Let's not be dismissive anymore. Let's just be empathetic and confident in our recommendation of, "Hey, stay the course." But let's explain... It only takes three minutes to explain why you're making that recommendation. Instead of just saying, "Stay the course, stay the course, stay the course, stupid, stupid, stupid," which is what I used to do, only takes three to five minutes to explain it. And then we don't have to have this discussion later. But if you're in the position where you have to...and by the way, I don't want this to... I'm aware of a risk here that 26% of advisors are saying they're considering including crypto and so I don't want the discussion we're having to be linked to us saying, "It's time for you to stop being dismissive about crypto." That's not what we're saying here.
Michael: Yeah. This could be anything. It happens to be the one now but we went through this with the internet stocks. We went through this with real estate. There was sort of a version of this of don't buy bonds in 2011 because the Fed's stimulating and we're going to have double-digit inflation. They're all going to crash. And then they didn't, they went up. Yeah.
Carl: These happen in cycles. But it is topical in terms of if you're getting questions about... I bet, because 26% of investors are considering it, I bet more and more of us are getting questions, and you haven't, you're going to get them, and why not practice not being dismissive this time? Just say, "I know it's a thing. I've been reading about it too. I've heard the podcasts as well. Let me describe for you. Oh yeah, remember when you told me time with your family? Here's the portfolio we built. Here's the goals and we'll keep our eyes on it.” That's how I would handle this.
Michael: And again, I think you make a powerful point of it's okay to explain that process even including that you may be dismissive and why because, look, at the end of day, you're either working with a client that's hired you because at the end of the day they want to rely on your advice or not. And if they're really going to have a problem with that, with that conversation, with that approach, we want to handle it reasonably sensitively. You don't have to piss them off more. But if you've got a client that fundamentally says, "Well, if you're not going to go down the rabbit hole for every single crazy investment idea that I bring because one of them's going to work out and this was the one that worked out and I blame you even though the last one it didn't work out, you didn't research those either." If that's the client, this probably just might not be a good fit.
Carl: No, no, let's be clear. That's time to Nick Murray them. That's when this becomes really bad.
Michael: Nick Murray is now a single word for...
Carl: It's a verb. Let me just mention something. That feeling of I may feel a little bad because I was dismissive and I'm changing my mind, that point to this idea of remember you didn't get hired to defend an outdated map. Right? You got hired to be the guide in the changing landscape. And it's okay. It's what we want educated people to do. I had an opinion, disconfirming evidence showed up, I'm going to evaluate the disconfirming evidence and in light of that disconfirming evidence I'm now changing my opinion. And if you can set that up early and often, then you haven't hired me to defend whether the map is the financial plan or an investment thesis or a spending tool or an app that we use. You didn't hire me to defend that stuff. You hired me to guide you through this process. Then we can let go of that guilt because that's a big deal. I mean, it's the same guilt we feel when the plan blows up. So, yeah, I think understanding your value is in... Right now we can fix that problem a little bit by being less dismissive and just explaining the process, including the "I don't know" process. It's okay to have an "I don't know" process. No one's going to... In fact, they're going to admire you more for saying this is part of our "I don't know" process right now. "I don't know, but I do know that you have these goals. This portfolio is the one we built. This is the process we decided. These investments fit inside of it and we'll continue to evaluate." That's how I'd go.
Michael: Awesome. Well, thank you, Carl.
Carl: Oh, my pleasure. Super fun. Thanks, Michael.
David Leo says
This was an extremely important topic and handled most excellently. Carl’s last comment as a summary was perfect! The interaction in all your K&C discussions in very unique, very well done, and takes two excellent practitioners that approach life and business differently but with common high values and integrity which is really what this business must be about. Just a great job!!! Thank you.
Sometimes we may also agree with the investors thesis but simply not have a way for them to invest in that asset on our platform. One key lens to frame these discussions re crypto is to ask, ‘is this a single investment or are we viewing this as a new asset class’. Once something gains acceptance as an asset class, it really must not be ignored. That’s how all of our clients eventually got just about everything in their portfolio from High Yield bonds to EM equities. When the world decides that something is a 1-5% allocation of anything, whatever that thing is will have an enormous tailwind for at least 2-3 years. Giving clients a validation to make an initial, $X investment helps you develop trust while reinforcing the importance of diversification. At the very least those who are pooh-poohing Crypto in general or BitCoin specifically should loose the right to invoke the Gretskyism about skating to where the puck will be instead of where the puck is.
Gus Doyle says
Thanks for this instalment. Like Carl I get nervous about the “next big investment opportunity”. I simply won’t invest in something I don’t understand. I have had to relook at investment options with my advisor Morebo since previously I was reliant on money markets and cash investments, but here in South Africa interest rates plummeted over the last 18 months. Looked into Crypto – awesome – but – don’t a have a clue about it, will rather go back to other proven investments which by now I have a good understanding of and can make a modest but stable return on.
Jean Rodriguez says
As long as bitcoin remains seen as a stock and not a store of value/currency it will move like a stock or like gold. Why do people buy and hold it? Because they believe it will go up in value. Just like gold. People don’t buy it to use at the convenience store to buy goods. I don’t know how this changes. Maybe it never does. Make sure to track all your crypto wallets, learn more by reading this blog https://www.dexfolio.org/blog-posts/track-all-crypto-wallets