“Bad” Advice Can Add Value

I have an advisory client who is a very successful. He places many of his clients (including some with very significant assets) in one core fund, depending on their tolerance for risk. He carefully explains the pros and cons of this approach, which includes giving up some tax benefits. Overwhelmingly, his clients agree to the core fund.

He tells me they “love getting a statement with only one holding” and that many tell him “this is the first time they can understand their statements.”

Those benefits are real. Here’s another one.

Few clients are capable of understanding how alternative funds work. They can be exceedingly complex. Owning funds you don’t understand creates significant anxiety.

That’s a major negative.

On balance, for some clients, you can add value by simplifying their portfolio.

Owning a home

There are many reasons why advising clients to rent rather than purchase a home is sound investing advice.

We own our home. We paid off our mortgage. It gives me peace of mind to know that our shelter is secure.

While our home has appreciated, I would have done much better if I invested in a broadly diversified index fund.

I don’t care.

I can’t quantify the value we derive from owning our home, but it’s significant.

It may be bad advice for others, but it was good for us.

Deferred-income annuities

There are many pros and cons to partial annuitization using deferred-income annuities (DIAs, also known as longevity insurance). They are nicely summarized in this blog post.

The pros and cons of buying an annuity are unique to each investor. More risk-averse investors may find them attractive.

About three years ago, against the advice of my advisors, I started purchasing DIAs. I was fully aware of the objection that it didn’t make sense to do so in a low-interest rate environment.

When I bought my first annuity, I was able to get one pegged to actual inflation. These policies are no longer available. My subsequent purchases were geared to historical inflation.

What’s the value of knowing we will always be covered for a portion of our current expenses for the rest of our lives? Again, I can’t quantify it, but it’s substantial.

“Peace of mind” means different things to different people. You can add significant value by understanding what it means to your clients. You can provide it by presenting options typically maligned as “bad.”

Dan Solin is a New York Times best-selling author of the Smartest series of books. His latest book is The Smartest Sales Book You'll Ever Read. His sales coaching practice includes helping advisors convert prospects into clients and generating leads through videos and other elements of marketing. Dan is not affiliated with any advisory firm.

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