No. NO. No.

In slow motion… NOOOOOOOOOOOO.

By definition, it’s a negative.

Last week, after meeting & reporting our findings with a potential new client, the word “No” passed my lips. And then it passed theirs. It’s a pretty tough story.

He was a successful professional who liked to spend money. She was stricken with a debilitating disease that should have killed her 20 years ago but didn’t. She was strong and had always been the saver. The toll of her need for around-the-clock care, and his need to eat at restaurants & “live a little” were mounting. On an otherwise bountiful nest egg…

So together, through thick & thin the couple made it this far.

Then their life changed: an unfortunate incident became a small fortune. She fell somewhere, they sued and with it, a rather large settlement. And a new chapter. Now, they wanted us to help provide $175,000 a year in income — on $1.2 million dollars.

In the bake-off for their attention, it was our firm vs. a major wirehouse.

We were given the same basic parameters. “We cannot lose a lot of money, ever” and “we need this to last as long as we can,” preferably 10+ years.

Their son was an executive for a major financial services firm. When I asked them, “Why not give the money to his company?” “…He was drinking the kool-aid.” “We don’t trust his firm.” {true story}

The potential client, did, however, trust his son enough to help calculate that he “needed 8% a year” to provide an income of $175,000 (US) a year. That was the moment.


“That’s probably not going to happen” was the first thought echoing in my head. That’s not realistic. Their expectation, using that calculation, was to achieve 8% every year. 

But, we know markets don’t work like that. Don’t we?

Instead, you need to do a Monte Carlo simulation. And even those aren’t perfect at projecting the future. But his son used the same calculation {I’m guessing} 30% of advisors in practice today still use for their illustrations.

The year was 2000 C.E.

I worked for one of the major Wall Street firms and the financial projection software we used showed an “ideal” allocation & possible return. Then it projected your stated annual expenses & your investment contributions (of course)… and in 30 years, you’d have like $20 million dollars. Bam. With all of the proper disclosures in 10 font print, of course. The software used compounding interest to calculate the proposal. The same software being used since the 1980’s to convince mom’s and pop’s around the world that with a little fiscal fortitude they’d be millionaires.

It was almost comforting to know not much had changed since the 80’s. I remember that guy, sitting at my dad’s kitchen table telling my dad how bright his future was going to be buying those mutual funds. None of it is reasonable but making clients feel good about their financial situation is always more fun & easier to sell.

You Are The Fairest Of Them All.

And here, in an act of love, the “big financial executive” is basically giving his dad the same treatment. Financial Hope-titude.

I won’t lie. I was worried. Not only was this person pushing the envelope of reality with his expectations, he wasn’t understanding most of the stuff I was trying to teach him.

As I see it, I don’t need a client to know everything, but I do need them to understand some things: Standard Deviation. Expense Ratio. What is an index fund? Why that is better than a mutual fund structure in some cases. Why the S&P 500 isn’t always the benchmark you should be using… But I digress…

Ultimately, he said “No” to me. To us.

He didn’t like our numbers. We weren’t going to make him enough money, I suppose.

We’d shown a 60/40 portfolio. That’s 60% growth | 40% capital preservation. We told him to cut his expenses.

The other firm? 85/15. Yep, that’s 85% stocks / 15% fixed income… An allocation recommended to someone who “can’t lose a lot of money, ever.”

We told him- even using the risk management technique we’d advocated on the 60/40 portfolio, he was already probably going to feel uncomfortable with the amount of red on the screen at times. But he was focused on return.

Ultimately, when we offered to compare the specifics of the plan, fund vs. fund, etc. we learned they hadn’t actually seen that yet. That was going to be a separate report from the projections. But their financial projections? They looked better.

Remember this, people: The actual implementation plan in most wirehouses is almost always a wholly separate report & legal process from the financial projections (a broker can’t be an adviser at the same time).

Now, can you imagine? By definition, a market correction is at least a 10% drop in the market. There’s been a market correction, on average, every 2.8 years since 1928. So, we might get a good run- it’s certainly possible. Heck, statistically probable even {or not}. But under the proposal they choose, that’s 85% of your liquid net worth. On 1.2 million? That’s $102,000 (US). Gone. Poof.

Basically, a year of your income– gone. From the pile of money that’s supposed to provide $175,000 for 10+ years. I’m sure you’d be cool with things, with that drop in the market. You know what the broker will say, “Just hang on. It will come back.” 

I have to say: my competitive nature never likes to “lose.” My inner Morpehus mourns the loss of a soul who could not make the jump out of the matrix and into reality. But my inner zen accepts the No, hearts the No, embraces the no.

In my younger years hearing No, would have tortured me for weeks. And my manager would have screamed at me for saying No.

Today, I write about it, and move on.



See Also: The Father Of Financial Planning Was “Lazy”

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