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The Worst Way to Handle a Performance Question (And What to Do Instead) · Root Ready

• 0:00
  SPEAKER_00: Welcome back to another episode of the Root Ready Podcast.
• 0:02
  SPEAKER_00: Today we're talking about that instance where you are meeting with a brand new client, brand new perspective client, and one of the first things they want to know about is performance.
• 0:13
  SPEAKER_00: What do you do in that instance?
• 0:14
  SPEAKER_00: How do you determine if this is a totally wrong fit client, maybe a potentially good fit client?
• 0:19
  SPEAKER_00: But to start, Eden, have you ever faced that?
• 0:22
  SPEAKER_00: You, you and Naomi, has there ever been someone that came in and the first thing they were interested in was performance?
• 0:28
  SPEAKER_01: Absolutely.
• 0:29
  SPEAKER_01: I've seen that a few times already.
• 0:31
  SPEAKER_00: What walk me through what happened?
• 0:33
  SPEAKER_00: So a kickoff meeting is scheduled.
• 0:35
  SPEAKER_00: Is that what happened?
• 0:36
  SPEAKER_00: And then they launched right into it, or was it a different circumstance?
• 0:40
  SPEAKER_01: Yeah, that's exactly it.
• 0:41
  SPEAKER_01: Kickoff, new client, don't know a ton about them, and we want to dive into our process.
• 0:46
  SPEAKER_01: But top of mind for them is what's the portfolio like?
• 0:49
  SPEAKER_01: What's the performance been like?
• 0:51
  SPEAKER_00: Yeah, interesting.
• 0:52
  SPEAKER_00: So we're going to talk about that today.
• 0:53
  SPEAKER_00: Of how do you approach that?
• 0:54
  SPEAKER_00: By the way, if you didn't listen to last episode, Eden is a co-host on this podcast.
• 0:59
  SPEAKER_00: She's an associate advisor here at Root.
• 1:02
  SPEAKER_00: And we're going to be doing this together for the foreseeable future here.
• 1:05
  SPEAKER_00: So let's talk about that.
• 1:07
  SPEAKER_00: So was this, did this end up being a good fit client or a poor fit client?
• 1:11
  SPEAKER_00: This specific example that came in and performance was top of mind for them.
• 1:16
  SPEAKER_01: For the specific client I'm thinking of, we did not end up moving forward with them.
• 1:21
  SPEAKER_01: We had a hard time getting past the performance question.
• 1:24
  SPEAKER_01: And it was just so top of mind for them that it almost was like the value we could provide in other areas.
• 1:31
  SPEAKER_01: You know, the holistic financial planning process didn't even feel like a value add for them because they were so focused on the investment piece, the performance, the portfolio.
• 1:40
  unknown: Yeah.
• 1:40
  SPEAKER_00: Yeah.
• 1:41
  SPEAKER_00: Well, let's talk about that.
• 1:42
  SPEAKER_00: I want to hear more about how that was specifically approached.
• 1:45
  SPEAKER_00: But I think that there's a framework I want to go through here because just because someone asks a performance question, I think we have a tendency to say, oh, this is a performance chaser.
• 1:55
  SPEAKER_00: We should disqualify this person.
• 1:56
  SPEAKER_00: This isn't going to be a good fit.
• 1:58
  SPEAKER_00: That might be the case, but it might also not be.
• 2:02
  SPEAKER_00: So the first point that I would start with here is the question itself is valid.
• 2:06
  SPEAKER_00: Hey, Eden, what was your firm's performance?
• 2:08
  SPEAKER_00: Hey, Naomi, what was your firm's performance?
• 2:10
  SPEAKER_00: That's valid.
• 2:11
  SPEAKER_00: And I think that as advisors, we can have a tendency to shy away from the harder conversations.
• 2:17
  SPEAKER_00: So we want to talk about planning, we want to talk about the comprehensive stuff.
• 2:20
  SPEAKER_00: We want to talk about all that.
• 2:21
  SPEAKER_00: We we see the value.
• 2:24
  SPEAKER_00: But we also have to recognize that the person who is coming to us, uh, they are considering handing their life savings, their financial future to us.
• 2:34
  SPEAKER_00: And they're like, well, well, I got to make a good decision.
• 2:37
  SPEAKER_00: How do you make a good decision?
• 2:38
  SPEAKER_00: Well, you ask good questions.
• 2:39
  SPEAKER_00: What questions should I ask?
• 2:40
  SPEAKER_00: Well, I don't know.
• 2:41
  SPEAKER_00: I don't know anything.
• 2:42
  SPEAKER_00: I'm not gonna go to Eden and say, hey, Eden, how are you gonna walk me off a ledge when I'm tempted to sell everything in a bear market?
• 2:48
  SPEAKER_00: Or hey, Eden, how are you gonna make sure my spouse feels hurt too?
• 2:52
  SPEAKER_00: And that we feel that's not where their mind's going.
• 2:56
  SPEAKER_00: Their mind's going, okay, well, this person's managing my portfolio.
• 2:59
  SPEAKER_00: Um, heck, I don't know, Eden, what's your per company's performance like?
• 3:04
  SPEAKER_00: You know, I think it's a very fair question if we put ourselves into their shoes.
• 3:10
  SPEAKER_00: Not only that, look at how we charge.
• 3:12
  SPEAKER_00: Now we're charging assets under management fee based on the portfolio.
• 3:17
  SPEAKER_00: So I think that this is a very valid thing.
• 3:19
  SPEAKER_00: And on top of that, you know, they haven't spent 10,000 hours in this industry seeing what the actual true value of a good planner is.
• 3:28
  SPEAKER_00: So I think that when we hear something, this is just a general principle, we have this tendency to hear something based upon our experiences.
• 3:36
  SPEAKER_00: And the and that question to us, it lands differently than it was intended from the prospects.
• 3:44
  SPEAKER_00: And now I know you you were thinking about a specific client, but so let's go back to the example, Eden, that you talked about.
• 3:50
  SPEAKER_00: Walk me through what happened.
• 3:52
  SPEAKER_00: This person came in and it was performance robust, or was there anything else that they were potentially looking for?
• 3:58
  SPEAKER_01: It was a mix of performance.
• 4:00
  SPEAKER_01: They really wanted to know about our portfolio construction.
• 4:04
  SPEAKER_01: So it wasn't just exact performance.
• 4:07
  SPEAKER_01: What did what did your portfolios do last year?
• 4:09
  SPEAKER_01: It was much deeper in the investment construction.
• 4:12
  SPEAKER_01: How are the portfolios constructed?
• 4:14
  SPEAKER_01: What funds do you use?
• 4:15
  SPEAKER_01: Why do you use them?
• 4:16
  SPEAKER_01: How does that relate to performance?
• 4:17
  SPEAKER_01: Just very heavy on the investment piece of our process.
• 4:21
  SPEAKER_00: Yeah.
• 4:22
  SPEAKER_00: And do you recall how you in in Naomi navigated that conversation when it came up?
• 4:29
  SPEAKER_01: Yeah.
• 4:29
  SPEAKER_01: So it's, I think for us a lot of times, it's our natural inclination to acknowledge that.
• 4:36
  SPEAKER_01: Yes, that's totally part of what we're going to talk about in this process.
• 4:40
  SPEAKER_01: And this is how we framed it is we'll get to that.
• 4:43
  SPEAKER_01: We'll absolutely talk about this.
• 4:45
  SPEAKER_01: But let me show you everything else that we're going to add value for you in this process.
• 4:51
  SPEAKER_01: It's not just going to be the investments.
• 4:54
  SPEAKER_01: And I think that's a lot of times how we approach things at root because we are super excited.
• 4:59
  SPEAKER_01: We're more excited sometimes about the other parts of the process than the investments.
• 5:03
  SPEAKER_01: It's just a piece of it.
• 5:05
  SPEAKER_01: And so that was how we kind of pivoted away from that.
• 5:08
  SPEAKER_01: It really started investment-heavy portfolios.
• 5:10
  SPEAKER_01: And our approach is like, we're absolutely going to talk about that.
• 5:14
  SPEAKER_01: Today is probably not the day that we're going to dive super deep into that.
• 5:18
  SPEAKER_01: Here's how this is going to go.
• 5:20
  unknown: Yeah.
• 5:21
  SPEAKER_00: Yeah, I think this is a really important distinction.
• 5:23
  SPEAKER_00: I think the first thing that we want to say is I think that as advisors, we have to understand, we have to realize that a performance question is absolutely a valid question.
• 5:34
  SPEAKER_00: However, from there, I would say things veer off.
• 5:37
  SPEAKER_00: Your job as an advisor is to say, what's the question behind the question?
• 5:42
  SPEAKER_00: Is this a performance question because you're trying to gauge a major decision and you don't know maybe the full value?
• 5:49
  SPEAKER_00: Like perfectly understandable.
• 5:51
  SPEAKER_00: Let me address that.
• 5:53
  SPEAKER_00: Versus, are you here saying, look, if you can't outperform the SP 500, if you can't outperform the NASDAQ, you know, and I know that if all you're trying to do is that roots the wrong fit.
• 6:05
  SPEAKER_00: Now, performance is absolutely a big part of our value.
• 6:09
  SPEAKER_00: But if you're just looking for portfolio management, don't pay us.
• 6:12
  SPEAKER_00: You can do that elsewhere for a lesser fee.
• 6:16
  SPEAKER_00: We are going to charge a fee based upon the value that we provide.
• 6:20
  SPEAKER_00: And yes, performance is part of that, but if that's all you're looking for, then you're missing what we feel is the biggest part of that value.
• 6:27
  SPEAKER_00: But I think this does go into, you know, I'm thinking of a specific advisor call that I was watching.
• 6:33
  SPEAKER_00: And the prospective client brought up performance.
• 6:35
  SPEAKER_00: And I think the advisor is quick to say, oh, performance chaser, this person's not cut out for what we do.
• 6:41
  SPEAKER_00: And, you know, politely excuse them just and said, Hey, we're not, we're not a right fit.
• 6:45
  SPEAKER_00: And then, you know, we saw that call on that recording and we said, no, this, I think this person is absolutely a good potential fit for what we're doing.
• 6:53
  SPEAKER_00: They just don't know the questions to ask.
• 6:55
  SPEAKER_00: Or the advisor is thinking that, you know, I think we've swung so far in the planning direction, even as an industry.
• 7:02
  SPEAKER_00: If, you know, 20 years ago, 30 years ago, your value was performance.
• 7:07
  SPEAKER_00: Eden, you're hiring me so I can pick stocks for you.
• 7:09
  SPEAKER_00: And then, okay, you're hiring me so I can pick mutual funds and build out a diversified portfolio for you.
• 7:14
  SPEAKER_00: The pendulum has swung so far in another direction that it feels like, oh no, we're just planning.
• 7:19
  SPEAKER_00: And there's almost this like bragging sometimes.
• 7:21
  SPEAKER_00: But we don't even talk about performance.
• 7:23
  SPEAKER_00: We don't, and and good.
• 7:24
  SPEAKER_00: Like the value should be on the planning piece, but performance is part of our value.
• 7:29
  SPEAKER_00: I think the industry has swung so far away and so far overcorrected from leading with performance, which was good.
• 7:36
  SPEAKER_00: But the negative is sometimes we think that like investments and uh the performance piece is like a that doesn't even that doesn't even matter.
• 7:46
  SPEAKER_00: That absolutely matters.
• 7:47
  SPEAKER_00: Like without that piece, a client's plan is not going to be brought to fruition.
• 7:51
  SPEAKER_00: It's kind of like the gasoline that drives the vehicle that we're constructing with the plan itself.
• 7:55
  SPEAKER_00: So I do think that there's a tendency for advisors as a whole to be dismissive of the performance conversation, partially because of maybe not understanding that like that absolutely is part of your value.
• 8:09
  SPEAKER_00: But the other part I think is just uncomfortable.
• 8:11
  SPEAKER_00: How do I have those conversations?
• 8:13
  SPEAKER_00: How do I have those conversations when I know the right answer isn't, well, we're going to outperform the SP 500?
• 8:18
  SPEAKER_00: But there still is a right answer in that.
• 8:22
  SPEAKER_00: So I think that when we think about this, um we need to be able to share how we're going to invest.
• 8:34
  SPEAKER_00: We need to be able to have a defensible answer, conviction in why we are doing things the way we're doing.
• 8:41
  SPEAKER_00: Because performance is still part of it, as I said.
• 8:43
  SPEAKER_00: That might not come from active stock selection or active stock picking or time in the market, but there is still a fund selection element.
• 8:51
  SPEAKER_00: There is still an asset location element, there is still a root reserves implementation element, there is still a behavioral coaching element.
• 8:58
  SPEAKER_00: All those things are going to drive performance.
• 9:00
  SPEAKER_00: But I think that here's how I would do it.
• 9:04
  SPEAKER_00: If someone comes in, well, let me ask you, Eden.
• 9:07
  SPEAKER_00: I'm going to put you on the spot.
• 9:08
  SPEAKER_00: I'm a prospect, I'm your prospective client, you're my advisor.
• 9:10
  SPEAKER_00: Hey, Eden, what was your performance last year?
• 9:13
  SPEAKER_00: Before even answering, like, what feeling do you get when that question is asked?
• 9:19
  SPEAKER_01: I just right off the bat, trying to put myself in those shoes, I feel a little deer in the headlights.
• 9:26
  SPEAKER_01: Oh, I wasn't expecting that right off the get-go.
• 9:29
  SPEAKER_01: I don't really know anything about this person just yet.
• 9:32
  SPEAKER_01: I was hoping to learn more about them first before we got into things like that.
• 9:36
  SPEAKER_01: Definitely an immediate kind of knee-jerk reaction.
• 9:40
  SPEAKER_00: Mm-hmm.
• 9:41
  SPEAKER_00: Almost like you need to defit defend yourself or you need to like try to redirect, diffuse the situation type of a feeling.
• 9:48
  SPEAKER_01: For sure.
• 9:49
  SPEAKER_01: Yes.
• 9:49
  SPEAKER_01: Feels escalated for some reason.
• 9:51
  SPEAKER_01: Just that performance word feels like an escalation of something.
• 9:56
  SPEAKER_00: Mm-hmm.
• 9:56
  SPEAKER_00: Mm-hmm.
• 9:57
  SPEAKER_00: And I think that is a feeling a lot of people listening probably resonate with.
• 10:02
  SPEAKER_00: Now, if you were to ex if you were to respond to it, and we talked about this last time, but this this this new podcast format is just gonna be kind of putting each other on the spot, asking questions, having a real conversation.
• 10:12
  SPEAKER_00: But if if you were to respond, I say, Eden, what was your performance last year?
• 10:16
  SPEAKER_00: What's your first inclination of how you'd respond?
• 10:21
  SPEAKER_01: Well, my initial thoughts just internally, I feel like are centered around whether it I feel like typically this question comes from somebody who's maybe had an advisor before and they're very used to talking about performance a lot, and they kind of expect that to be our driving force in what we're gonna talk about a lot.
• 10:39
  SPEAKER_01: So for me, I think if we know already, or even if we don't, whether or not this person's worked with an advisor before, that kind of feels like a pivoting question for me to explore more what their conversations about performance have looked like in the past before I even start to answer that.
• 10:57
  SPEAKER_01: For me, it's probably where I would start to go with that is okay, you've clearly had some sort of experience with this before, hence why you're asking.
• 11:06
  SPEAKER_01: Tell me more about that.
• 11:07
  SPEAKER_01: What has this looked like for you in the past, whether you've worked with an advisor or not?
• 11:12
  SPEAKER_00: So trying to put it as trying to get more context before answering.
• 11:17
  SPEAKER_01: Yeah.
• 11:18
  SPEAKER_01: Right.
• 11:18
  SPEAKER_01: I mean that that type of question is coming from somewhere.
• 11:21
  SPEAKER_01: There's there's a reason they're asking that question, and probably a reason they're asking it first thing.
• 11:27
  SPEAKER_01: So before I try to answer that question and definitely feel on the defensive, where's it coming from?
• 11:33
  SPEAKER_01: Why are you asking that question?
• 11:35
  SPEAKER_01: What experiences have you had with this topic before, with performance?
• 11:39
  SPEAKER_01: Have you been burned before?
• 11:41
  SPEAKER_01: Where is this coming from?
• 11:43
  SPEAKER_00: Yeah.
• 11:44
  SPEAKER_00: Yeah.
• 11:45
  SPEAKER_00: And I think all very fair points.
• 11:48
  SPEAKER_00: In my experience, the best thing that because because what are we, what are we trying to do?
• 11:52
  SPEAKER_00: We're trying to find what you're talking about.
• 11:54
  SPEAKER_00: We're trying to find what's the question behind the question.
• 11:56
  SPEAKER_00: It's typically not just a performance question.
• 11:58
  SPEAKER_00: There's typically something else that's driving that.
• 12:02
  SPEAKER_00: To me, what I found is most effective is just answering the question clearly.
• 12:06
  SPEAKER_00: What was your performance?
• 12:07
  SPEAKER_00: And now you like granted, like you've got to have a general sense of like understanding your portfolios, your company's portfolios, like what did they perform last year?
• 12:15
  SPEAKER_00: So you're not making it up, but um if I was doing this, Eden, if you are my prospect and saying, hey James, what was your performance last year?
• 12:22
  SPEAKER_00: Like, that's where we started.
• 12:24
  SPEAKER_00: It's like, whoa, yeah, like you're in the headlights, defensive.
• 12:26
  SPEAKER_00: Like we have to ask ourselves, like, is that why are we feeling defensive?
• 12:32
  SPEAKER_00: Why are we feeling maybe that's more uh an indictment on us than it is on the prospect asking in some ways?
• 12:40
  SPEAKER_00: I think we need to be prepared to answer all of these things, which again are very fair questions when we think about the gravity of the decision that prospect is about to make with their family's finances and their future.
• 12:54
  SPEAKER_00: And so I always what I thought was most effective after I've tried to dodge it, I've tried to reframe it, and I finally got to the point where it's just, well, you know, of course, every client's different.
• 13:03
  SPEAKER_00: So this is no indication of a specific client.
• 13:05
  SPEAKER_00: But if you were in all stock portfolio last year, you would have seen returns of about 20%.
• 13:11
  SPEAKER_00: If you were, say, in a 50-50 balance allocation, you would have seen returns of, you know, maybe 13%.
• 13:17
  SPEAKER_00: I'm just making some of these numbers up, but not probably not too far off.
• 13:21
  SPEAKER_00: And then stop.
• 13:23
  SPEAKER_00: And and what it's done is there are times when it's appropriate to redirect and reframe.
• 13:31
  SPEAKER_00: There's times when we redirect and reframe that it's like, what are you hiding?
• 13:36
  SPEAKER_00: You know, it was an innocent enough question.
• 13:39
  SPEAKER_00: And I didn't and I think I didn't even mean anything by it.
• 13:42
  SPEAKER_00: But when you're it's like, have you ever talked to someone like you're trying to get an answer?
• 13:45
  SPEAKER_00: Like, why won't you give me an answer?
• 13:47
  SPEAKER_00: Like I didn't think there was an issue here, but now all of a sudden I'm like, Eden, what are you hiding?
• 13:51
  SPEAKER_00: You know, what's what's going on there that you don't want me to know?
• 13:55
  SPEAKER_00: And I think as advisors, specifically planning focused, comprehensive planning-focused advisors, we've strayed so far from feeling like, hey, performance is just what it is, and it's almost like a sin for someone to talk about it and think, no, it's it is absolutely part of what we do.
• 14:13
  SPEAKER_00: But here's what answering directly does there's almost like a decision tree that's gonna sprout out from there.
• 14:20
  SPEAKER_00: If they then go to, well, my you know, tech portfolio outperformed that by 12%, cool.
• 14:29
  SPEAKER_00: May I ask, like, what are you what are you hiring us?
• 14:32
  SPEAKER_00: Like what what what was it about us that prompted you to reach out?
• 14:36
  SPEAKER_00: And they say, well, I returned 33% last year.
• 14:38
  SPEAKER_00: If you can't do at least that, then I don't cool.
• 14:40
  SPEAKER_00: Okay, like we we got to the core of the issue really quickly.
• 14:43
  SPEAKER_00: I think that the value you're looking for is fine, but it's not the value that we're gonna try to offer.
• 14:49
  SPEAKER_00: In fact, I don't think anyone can consistently do what you're trying to ask, but at least I now know.
• 14:54
  SPEAKER_00: Versus, I would say a lot of the cases, that was okay, cool.
• 14:59
  SPEAKER_00: Next question.
• 15:00
  SPEAKER_00: Like to them was more of I need to check the box.
• 15:02
  SPEAKER_00: Like, and and and again, if I was to say our performance last year was 4% and equity markets were all up double digits, high double digits, like they're gonna want to know that.
• 15:13
  SPEAKER_00: Like that's a that you're doing something wrong, Rue.
• 15:15
  SPEAKER_00: I don't care how good you do tax planning and retirement planning and income planning, if your returns are that poor, I don't want any part of it.
• 15:23
  SPEAKER_00: I wouldn't want any part of that if that, if I was a prospective client.
• 15:26
  SPEAKER_00: So I think that by being direct, and and this is this is more of a general principle.
• 15:33
  SPEAKER_00: You know, I remember when I was a young advisor and uh, you know, I was 26 years old, and people would come in and was like, gee, how old are you?
• 15:40
  SPEAKER_00: And I was like, Well, I'm you know, I I would I'm I've passed the CFP and I've been in this industry for five years and I've met with and it's like that never instilled any comments.
• 15:50
  SPEAKER_01: Answer the question.
• 15:51
  SPEAKER_00: Exactly.
• 15:52
  SPEAKER_00: Then when I find I'm 26.
• 15:56
  SPEAKER_00: Oh, okay, cool.
• 15:57
  SPEAKER_00: Let's move on.
• 15:57
  SPEAKER_00: You know, it's almost like the the way, it's the way in which you answer that is gonna be far more effective than the answer itself.
• 16:05
  SPEAKER_00: And there is a time to redirect and reframe.
• 16:09
  SPEAKER_00: There's also a time where that redirection, that reframing, as we said before, is oh, I didn't think I actually had an issue with this, but maybe I'm starting to sense that there's something missing there.
• 16:20
  SPEAKER_00: Thoughts, questions, agree, disagree, Eden?
• 16:25
  SPEAKER_01: I just love the simplicity of it because even when you were like, this is how I just answer the question for this portfolio or this portfolio, kind of relating to you saying, as a young advisor, I feel like we sometimes have this knee-jerk reaction to overexplain.
• 16:39
  SPEAKER_01: My brain was going like, well, that depends on your risk tolerance and what kind of portfolio we would put you in.
• 16:46
  SPEAKER_01: And based on that, I can just answer the question, keep it simple.
• 16:51
  SPEAKER_01: I think there can be this, especially when we do holistic planning too, there's a little bit of a knee-jerk reaction or inclination to dive into all the other pieces, over-explain.
• 17:01
  SPEAKER_01: Just answer the question.
• 17:02
  SPEAKER_01: That answers the question in full, the way that you just simply said it.
• 17:06
  SPEAKER_01: And I think that could open a lot more doors, even sometimes, than trying to dig deeper.
• 17:11
  SPEAKER_01: Like you said, if you answer that question and then they say, Well, I returned this, or this was my experience in the past, you learned so much more by just answering the question simply than by that kind of initial defensive knee-jerk.
• 17:24
  SPEAKER_01: I need to overexplain, justify.
• 17:27
  SPEAKER_01: Just answer the question, and that might open an even wider door than trying to dig deeper right off the bat of why they're asking this question.
• 17:34
  SPEAKER_00: Exactly.
• 17:35
  SPEAKER_00: Their response to how you answer the question, that is gonna be the tell, not the initial question.
• 17:40
  SPEAKER_00: The initial question is very fair, very valid, we need to treat it as such.
• 17:44
  SPEAKER_00: The response from there is gonna tell you what you actually need to know.
• 17:47
  SPEAKER_00: And I think, by the way, like this is this is a bigger general principle that I like, I like to think about of we uh we are in this industry.
• 17:53
  SPEAKER_00: We have spent thousands and thousands of hours doing this.
• 17:56
  SPEAKER_00: We know all the ins and the outs and the nuances.
• 17:59
  SPEAKER_00: We we have seen the value that we provide to clients when they're two years in, five years in, ten years into a relationship.
• 18:07
  SPEAKER_00: But we have to earn the right to get there.
• 18:09
  SPEAKER_00: And I think that sometimes we we see all that and we want the client to know all of that right up front.
• 18:14
  SPEAKER_00: And so the answer we want to give is all of this information when the client's just, I just want to know the answer to a simple question.
• 18:20
  SPEAKER_00: And so I think about everything.
• 18:21
  SPEAKER_00: This could apply to how old are you as a young advisor?
• 18:25
  SPEAKER_00: This could apply to what's your performance.
• 18:26
  SPEAKER_00: This could apply to, Eden, I'm in my first conversation with you.
• 18:30
  SPEAKER_00: I just retired.
• 18:30
  SPEAKER_00: What should I do with my 401k?
• 18:32
  SPEAKER_00: It's that same thing.
• 18:33
  SPEAKER_00: Well, hey, before we talk about that, we're gonna talk about that in meeting number three when we get to embedded.
• 18:37
  SPEAKER_00: Just tell them the answer.
• 18:38
  SPEAKER_00: You know, if it's like you we got to be able to just to discern of, and it doesn't need to be direct advice that maybe we're not equipped to provide quite yet, but like, hey, typically it's gonna make sense to roll over to an IRA if you want to do this, but there's some planning opportunities if you keep it there.
• 18:51
  SPEAKER_00: We're gonna talk more about that in meeting number three when you actually go over.
• 18:55
  SPEAKER_00: So there's there's this sense of I think it was like the Trojan horse analogy of like, how do we infiltrate?
• 19:02
  SPEAKER_00: We know we can add so much value.
• 19:04
  SPEAKER_00: We know there's so much we can do for this prospect, but we gotta get in.
• 19:08
  SPEAKER_00: Like, we gotta earn the right to be heard.
• 19:10
  SPEAKER_00: And so there's this sense of we need to give people what they want, which is they want to know the answer to their performance question.
• 19:17
  SPEAKER_00: They want to know what do I do with my 401k, they want to know you fill in the blank.
• 19:22
  SPEAKER_00: And as advisors, we're so hesitant to answer the question directly.
• 19:24
  SPEAKER_00: It's like, no, it's the wrong question.
• 19:26
  SPEAKER_00: You should be asking us how your peace of mind and your confidence levels are gonna.
• 19:29
  SPEAKER_00: That's gonna come.
• 19:30
  SPEAKER_00: We have to be confident that's gonna come.
• 19:32
  SPEAKER_00: We got to give them what they want.
• 19:34
  SPEAKER_00: It's like the Trojan horse into the gates, and then we can give them what we need.
• 19:38
  SPEAKER_00: Now, obviously, in a beneficial perspective of the value that they're gonna receive from there, but I think that this performance thing is a big uh component of that.
• 19:48
  SPEAKER_00: So, any questions on that?
• 19:50
  SPEAKER_00: Anything that we, you know, as you as you think back to your conversations where this came up, was there any situation or anything prospect said that would be worthwhile to talk about?
• 20:04
  SPEAKER_01: I think you had touched on this earlier, and this kind of circles back to keeping it simple, but also knowing your stuff.
• 20:12
  SPEAKER_01: It is really important for us to be able to answer that question quickly, like you just did.
• 20:17
  SPEAKER_01: You should have a general idea of how the different types of portfolios did.
• 20:23
  SPEAKER_01: We should have a general idea of the funds we use, why we use them, how the portfolios are constructed.
• 20:29
  SPEAKER_01: You need to be able to answer those questions on the spot and provide the answers.
• 20:34
  SPEAKER_01: And I think that's something that Naomi does really well.
• 20:37
  SPEAKER_01: And it's something that she did with this client who was just really stuck on the investment piece.
• 20:41
  SPEAKER_01: Well, let's look then.
• 20:43
  SPEAKER_01: Let me show you.
• 20:44
  SPEAKER_01: Let me tell you about the funds we use and why we use them and go a little deeper on our philosophy.
• 20:49
  SPEAKER_01: And in that case, that was very helpful, but she was prepared.
• 20:53
  SPEAKER_01: She was ready to have that conversation deeper about the portfolio.
• 20:57
  SPEAKER_01: And you've touched on a few times.
• 20:59
  SPEAKER_01: That's not the number one core guiding principle of everything we do.
• 21:03
  SPEAKER_01: It's not the performance, it's not the portfolio.
• 21:06
  SPEAKER_01: But it is a really important part of what we do.
• 21:08
  SPEAKER_01: And you definitely need to be prepared to handle those conversations.
• 21:12
  SPEAKER_01: And I think it was really helpful because they kind of were looking for more, more of a sexy investment style, if you will, than our more kind of vanilla standard portfolio construction.
• 21:22
  SPEAKER_01: And we were able to figure that out by having a deeper conversation about the investment philosophy.
• 21:27
  SPEAKER_00: Yeah.
• 21:28
  SPEAKER_00: Yeah.
• 21:28
  SPEAKER_00: I agree.
• 21:29
  SPEAKER_00: And I think that again, another temptation that we all fall into is almost like, oh no, you want something cool and sophisticated.
• 21:38
  SPEAKER_00: We don't do.
• 21:38
  SPEAKER_00: No, it's it almost like diminishes what we do.
• 21:42
  SPEAKER_00: And I think that we again need a reframe of what we were what we are doing in the way we construct portfolios is absolutely trying to maximize your performance, given a constraint of how much risk we can take or how much liquidity we need, or whatever the constraint might be.
• 21:59
  SPEAKER_00: But within that There's, I think, going back to the industry as a whole, we're so far removed from like, yeah, you just diversify.
• 22:06
  SPEAKER_00: And like diversify has become synonymous with like boring, you're not going to grow, you're going to underperform.
• 22:12
  SPEAKER_00: And it's no, like, we're not saying this because we want you to underperform my personal portfolio.
• 22:17
  SPEAKER_00: I am diversified, just like you're taught, like, I'm going to be recommending to you because I want to maximize my performance.
• 22:24
  SPEAKER_00: This is not a be boring, play it safe strategy.
• 22:26
  SPEAKER_00: This is a maximize your growth potential within given constraints, of course.
• 22:33
  SPEAKER_00: And now we can't predict the future, but this is the best way that we're going to best position you to maximize that growth opportunity.
• 22:39
  SPEAKER_00: So investments in general seems to be that thing that used to be 100% of an advisor's value prop to a client.
• 22:49
  SPEAKER_00: It's no longer 100%, but it's it is absolutely a critical part of our advisor value prop.
• 22:56
  SPEAKER_00: And I think it's too easy for us to so focus on the planning, the tax stuff, the retirement stuff, the cash flow stuff, the estate stuff that we forget that this performance thing is what's driving the ship in the right direction.
• 23:10
  SPEAKER_00: Um, the second part, this, and we won't go into this too detailed today.
• 23:13
  SPEAKER_00: I actually already recorded a podcast.
• 23:14
  SPEAKER_00: I think it was episode number four about how to talk to performance to current clients.
• 23:19
  SPEAKER_00: So not that prospective client that you're trying to gauge like, is this person here for the right reasons?
• 23:24
  SPEAKER_00: Is this gonna be a good fit?
• 23:25
  SPEAKER_00: Can we deliver on what they're looking for?
• 23:27
  SPEAKER_00: But a current client, you know, you're in that review meeting, Eden, and it's a year where the NASDAQ shot the lights out and just make up numbers.
• 23:34
  SPEAKER_00: Your portfolio, the the client's portfolio did 20%, and let's say the NASDAQ did 30.
• 23:41
  SPEAKER_00: You're going into a meeting, oh man, I feel like, you know, I got a advisors, like you'll see advisors on LinkedIn or online bragging, but I don't even talk to performance my clients.
• 23:51
  SPEAKER_00: I don't even talk, and it's that's it's good that they're not bringing it up.
• 23:55
  SPEAKER_00: But why what I hear is why are you shine away from it?
• 23:59
  SPEAKER_00: I think that it actually builds confidence.
• 24:01
  SPEAKER_00: If I'm using this as an example, and again, I've recorded a full episode on this, but I think it ties into what we're talking about here.
• 24:06
  SPEAKER_00: If you're my client, so not a prospect, but now a client, and I'm not talking about performance, it kind of goes back to like it's on their mind.
• 24:14
  SPEAKER_00: You know the performance of your client's portfolio is on their mind.
• 24:17
  SPEAKER_00: And just because they're not asking about it does not mean it's not something they're curious about.
• 24:22
  SPEAKER_00: And if I constantly shy away from it and if I constantly leave it out of what we're doing, it kind of goes back to like, what are we hiding?
• 24:29
  SPEAKER_00: If I instead can, and I don't need to make this a big part of the meeting, but at least a certain part of the meeting, say, hey, we're gonna talk about your performance real quick.
• 24:39
  SPEAKER_00: Um the NASDAQ last year, the SP 500 last year was up 25%.
• 24:44
  SPEAKER_00: Your portfolio was up 20%.
• 24:46
  SPEAKER_00: Acknowledge it directly.
• 24:47
  SPEAKER_00: Like what I'm showing you is I'm on your side.
• 24:49
  SPEAKER_00: What I'm always looking at as your advisor is why.
• 24:52
  SPEAKER_00: I don't want to just say, oh, well, you're diversified and the SP is this.
• 24:56
  SPEAKER_00: So that's too basic financial.
• 24:58
  SPEAKER_00: What I what I frame it to the client as, or I say is eating your portfolio did 20, the SP 500 did 25.
• 25:08
  SPEAKER_00: I'm your advisor, and I always want to make sure your portfolio is best positioned for you to meet your long-term goals.
• 25:14
  SPEAKER_00: And so when I see that, it gives me pause.
• 25:16
  SPEAKER_00: And there's two reasons that your portfolio could underperform an index.
• 25:21
  SPEAKER_00: There's it's one of two issues.
• 25:22
  SPEAKER_00: Number one, it's a fund issue.
• 25:24
  SPEAKER_00: Like the actual funds were invested to you in are underperforming their benchmarks.
• 25:29
  SPEAKER_00: I'm gonna go with that, I'm gonna go through that line by line with you in just a second.
• 25:33
  SPEAKER_00: The second potential issue is an asset allocation issue of the mix of your stocks and bonds is different than this benchmark that we're comparing it to.
• 25:42
  SPEAKER_00: Okay.
• 25:43
  SPEAKER_00: So let's start with the fund issue.
• 25:44
  SPEAKER_00: And then I would go line by line.
• 25:45
  SPEAKER_00: Let's just let's just make up a number.
• 25:46
  SPEAKER_00: This client has 10 ETFs in their portfolio, whatever the number is.
• 25:50
  SPEAKER_00: So, okay, how did each individual ETF compare to its specific benchmark?
• 25:55
  SPEAKER_00: And you're gonna find that typically with 10, some outperform, some underperform.
• 25:59
  SPEAKER_00: And if I'm looking over the past year, I'm gonna say, Eden, you know, your large cap value fund, it actually outperformed its benchmark.
• 26:06
  SPEAKER_00: Your total market fund outperformed its benchmark.
• 26:08
  SPEAKER_00: Your international fund, it uh, you know, walk through and you can say, okay, as a whole, I'm making this up.
• 26:14
  SPEAKER_00: As a whole, Eden's um 70% of your funds actually outperformed their benchmark last year.
• 26:20
  SPEAKER_00: So when I'm going back to the thing I want to be mindful of here is your your the underperformance here, it's not a fund issue.
• 26:26
  SPEAKER_00: I'm actually very, very pleased with how your funds are performing.
• 26:28
  SPEAKER_00: They're doing exactly what they're asking them to do, which means it can only be an asset allocation issue.
• 26:36
  SPEAKER_00: The difference that you are seeing between the S P 500, which is this headline that's gonna be all over the news, but Eden, that's only the 500 biggest companies in America, in your portfolio, which is also owning small companies, which is also owning real estate, which is also owning international developed companies, which is also owning international emerging markets, which is also owning value.
• 26:59
  SPEAKER_00: Your mix is different than that mix.
• 27:03
  SPEAKER_00: So what I care about is like, did your large cap fund somewhat keep up with the S P 500?
• 27:07
  SPEAKER_00: Yeah, like that's doing exactly what it needs to do.
• 27:09
  SPEAKER_00: So why do we own these other things?
• 27:11
  SPEAKER_00: These things are underperforming.
• 27:13
  SPEAKER_00: You know, your international fund only performed 12%.
• 27:15
  SPEAKER_00: Your bond fund was only up 5%.
• 27:18
  SPEAKER_00: The question is, is it time to get rid of them?
• 27:20
  SPEAKER_00: And no, we got to take a longer time horizon than just one year.
• 27:23
  SPEAKER_00: And when we look at this, here's what we diversify.
• 27:26
  SPEAKER_00: And you know, there's a whole bunch of things we go through there of talking about how do we best position you with your root reserves, how do we best position you to not be negatively impacted by an event like the lost decade.
• 27:36
  SPEAKER_00: And so it's a way of I always think of helping to organize your clients' thinking.
• 27:42
  SPEAKER_00: There's so much information and so much noise and so much going on.
• 27:45
  SPEAKER_00: It's showing them very clearly, boom, we underperform.
• 27:48
  SPEAKER_00: And again, like some years you outperform.
• 27:50
  SPEAKER_00: So I'm just I'm using this as a specific example.
• 27:52
  SPEAKER_00: I'm acknowledging that we underperformed.
• 27:54
  SPEAKER_00: I'm showing you that I am absolutely on your side and I want to take a quick uh a deep look at this to see is anything wrong?
• 28:01
  SPEAKER_00: And then I've shown you how to think about it.
• 28:03
  SPEAKER_00: Is it a fund issue?
• 28:04
  SPEAKER_00: It's an asset allocation issue.
• 28:06
  SPEAKER_00: It's not funds, therefore it's an asset allocation issue.
• 28:08
  SPEAKER_00: But you know what?
• 28:09
  SPEAKER_00: I don't think this is actually an issue.
• 28:10
  SPEAKER_00: I think that this is a feature, not a bug, of we're spread out because of your plan and what we need to do and how we need to de-risk.
• 28:18
  SPEAKER_00: The natural side effect of that is Eden, some years you're gonna do better than this SP 500, which is just one component of a total portfolio.
• 28:31
  SPEAKER_00: In other years, you're gonna do worse.
• 28:34
  SPEAKER_00: Exactly what we would expect.
• 28:36
  SPEAKER_00: Last year was one of those years where you do worse.
• 28:37
  SPEAKER_00: And as you wrap that up, your clients thinking, okay, cool, like this thing that was kind of in the back of my mind.
• 28:42
  SPEAKER_00: Now I actually feel more empowered about this.
• 28:44
  SPEAKER_00: Like now I actually feel not only is my advisor looking at it, but like I have a better way of articulating this, I have a better way of understanding this.
• 28:50
  SPEAKER_00: So a completely different conversation for clients than it is with prospects.
• 28:55
  SPEAKER_00: Again, I recorded a whole episode on that.
• 28:56
  SPEAKER_00: I think it's the fourth episode of this Root Ready podcast, but at least wanted to tie that in to what we're talking about because there's gonna be a difference in the way we talk about this with clients versus with prospects.
• 29:07
  SPEAKER_00: Any questions on that or anything that feels unclear or that feels missed in that explanation?
• 29:13
  SPEAKER_01: I think I would just add on that the example you just provided, the way you walked through everything, you're not doing that to prove to your client that you're super smart and you know everything about all the markets and the funds.
• 29:28
  SPEAKER_01: That's not the point of the conversation that you just presented.
• 29:32
  SPEAKER_01: The point is that you care.
• 29:34
  SPEAKER_01: Of course, we care about performance.
• 29:37
  SPEAKER_01: We want to look at how your portfolio did.
• 29:39
  SPEAKER_01: We're talking to a client who has trusted us with their entire life savings, their whole nest egg.
• 29:45
  SPEAKER_01: The conversation you just had shows that I care as your advisor.
• 29:50
  SPEAKER_01: I really care about how your money is doing, how the accounts are growing, how this is supporting your lifestyle.
• 29:56
  SPEAKER_01: It's not about proving that I know everything about all the markets and I know how every benchmark performs.
• 30:01
  SPEAKER_01: That's not the point.
• 30:02
  SPEAKER_01: The point is that I care and I'm here with you, and I want you to know that I care just as much as you do about how these accounts do over time.
• 30:11
  SPEAKER_01: I think that's really powerful too.
• 30:13
  SPEAKER_00: Yeah.
• 30:14
  SPEAKER_00: Yeah, really well said.
• 30:15
  SPEAKER_00: I think in closing, is there's this sense of, you know, we all have that friend or that former manager or current manager or that person that we appreciate them so much because they were not afraid to have the hard conversations with us.
• 30:29
  SPEAKER_00: They would not beat around the bush when we needed to get some information from them directly.
• 30:32
  SPEAKER_00: They were, they would tell it as it is.
• 30:34
  SPEAKER_00: There's no one in the world that wouldn't say they appreciate someone who's like that.
• 30:39
  SPEAKER_00: So, as advisors, how do we recognize that?
• 30:41
  SPEAKER_00: How do we be that person to our clients?
• 30:43
  SPEAKER_00: How do we give them simple direct answers while also knowing when it's time to reframe or also reposition the question?
• 30:51
  SPEAKER_00: How do we embrace the hard conversation?
• 30:53
  SPEAKER_00: Not waste, wait for them to ask what can be an uncomfortable thing, but let us be the one to do it.
• 30:59
  SPEAKER_00: Let us be the one to say, I'm thinking about this too.
• 31:01
  SPEAKER_00: I have your best interest at heart.
• 31:03
  SPEAKER_00: Here's how I'm seeing it, and here's why I recommend we either make a change or stay the course as is.
• 31:08
  SPEAKER_00: So that investment piece, when it's asked, our natural tendency is to feel exactly like what you described.
• 31:17
  SPEAKER_00: Deer in the headlights, maybe heart feels like it's in my throat.
• 31:20
  SPEAKER_00: It's uh like I'm I'm getting defensive.
• 31:23
  SPEAKER_00: Accept it.
• 31:24
  SPEAKER_00: Like that's a perfectly valid question.
• 31:26
  SPEAKER_00: And as advisors, we owe it to our clients to be all over that.
• 31:31
  SPEAKER_00: We owe it to our clients to be absolute masters at just the the why behind it, the implementation behind it, to be able to explain it in a clear way.
• 31:39
  SPEAKER_00: So I hope that was helpful for people listening.
• 31:43
  SPEAKER_00: Anything else you would add, Eden, before we wrap.
• 31:46
  SPEAKER_01: No, I don't think so.
• 31:49
  SPEAKER_00: All right.
• 31:49
  SPEAKER_00: Well, thank you everyone for listening.
• 31:51
  SPEAKER_00: Next week, well, in two weeks from now, you know, we're doing this every other week.
• 31:55
  SPEAKER_00: Eden and I are gonna be talking about how do you, as an associate advisor, kind of learn best practices from your lead, but also develop your own voice and your own way of doing things as you're developing as an advisor.
• 32:07
  SPEAKER_00: So tune in to that in a couple weeks.
• 32:09
  SPEAKER_00: Thank you all for listening, and we'll see you next time.