Good Clients are Patient

Being a good client is just as important as finding a capable advisor. One of the key traits of a good client is willingness to stick to a portfolio for the long-term and trust the advisor’s recommendations.

While finding an educated, experienced and ethical advisor is very important, it’s only half the story. Of course, a good advisor can positively influence a client’s behavior, but the client ultimately makes the decisions that lead to success.

For instance, a man I knew socially came to my firm as a possible client. We decided he was not a good fit for our services because he could not stick to a plan.

We have an extensive intake process in which prospects have plenty of chances to ask questions, get to know us and ultimately decide whether to choose another advisor. We don’t want people to work with us without understanding our fundamental philosophies or fees.

This person wanted to skip the process and just sit down and talk about our investment philosophy and our performance. He spoke with my team leader for 25 minutes. He was pleasant, but tellingly, he said that he worked with three advisors in the last four years.

We asked what he liked and disliked about his prior advisors. And slowly, I learned why he went through so many in such a short period.

In 2009, he left an advisor who lost a huge chunk of money for him in 2008. In 2010, he dropped his next advisor of nine months because he didn’t keep up with the market’s recovery. And in early 2012, he cut ties with his third advisor, who neither made nor lost any money in 2011.

As we peeled back the onion, it became clear that each of these advisors was fired for doing exactly what they were hired to do. And most importantly, the person that got hurt in the process was the client who suffered losses from which he was never able to recover.

With the first advisor, who lost nearly 50% of the client’s money in 2008, the client made clear from the beginning that he was okay with risk, his time-horizons were long and he could tolerate volatility because he wanted to make aggressive returns.

The second advisor made less than the market in 2009 because the client told him to avoid a repeat of the large losses of 2008. His job was to be careful and protect the client’s remaining principal. He did this, but still failed to satisfy the client.

He left advisor three, who neither made nor lost anything (sort of like the market), because he felt that the advisor hadn’t been active enough to earn his fee.

Perhaps some of these problems are due to the advisors’ lack of education, experience or even ethics. I do not know how any of the advisors managed the money or how clearly they communicated with the client.

But I believe that the client’s inability to stick with a plan is mostly to blame for his dissatisfaction. Had he started with a more conservative approach, he may not have lost so much in 2008 and 2009. Had he stuck with the aggressive portfolio after those losses, it may have recovered more quickly.

His inability to stick to a plan caused all his unhappiness with his advisors, as well as the vast majority of his losses and lack of gains. Because he fired his advisors so readily, none of them had a chance to create a comprehensive plan for him. He never actually understood the risk/return or spend/save tradeoffs in his portfolio. I require my investment advice clients to undergo planning, and he refused this.

A good client has to trust his or her advisor and stick to a long-term process. Investing is a marathon, not a sprint. When you interview your first advisor, make sure to clearly communicate your goals and expectations. The advisor should be equally transparent with you from the beginning. Choose your advisor wisely in the beginning and be totally honest and transparent with him or her.  Then, as long as you are on the same page, stay committed to your plan and that advisor. 


Jonathan K. DeYoe, AIF and CPWA, is the CEO of DeYoe Wealth Management in Berkeley, Calif. Follow Jonathan on Twitter at @DeYoeWealth .


Jonathan DeYoe, California Insurance License #0C21749, is a registered principal with and securities and advisory services offered through LPL Financial, a Registered Investment Advisor - Member FINRA/SIPC.


The opinions voiced in this material do not necessarily reflect the views of LPL Financial and are for general information only and are not intended to provide specific advice or recommendations to any individual. For your individual investing needs, please see your investment professional regarding retirement planning.


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