Thursday, September 29 2022

Have you seen the promos for the new CBS series “Good Sam?” One line in the ads has her say, “When you were in charge and dinosaurs ruled the earth.” As a financial advisor today, you might wonder what life was like when the most senior advisors in the office got into the business.

Let’s go back in time to the 1980s. Many of you may not have been born. There were certain behaviors and traits in place.

1. It was about making money. People wanted an advisor who made money for them. An executive I knew told me he talked about his adviser all the time, but the important question was “did they make me money?” If the answer was yes, then he would fire them. This is what the friend asked the client when he mentioned the name of the adviser.
Good because: Life was simple. Fees weren’t a big deal if customers were making money. It wasn’t just stock trading. Getting good bonds with high interest rates meant the same for income-oriented clients.
Bad because: Advisors would be tempted to take excessive risks to perform.
Today: Managed money and a long-term view have moved the industry away from “you’re only as good as your last trade”.

2. Stocks and bonds were the main products. Mutual funds, bond funds and options were the other top product sectors. Insurance agents sold insurance. Bankers made loans. Clients came to you (or you found them) because brokerage firms focused on their one area of ​​expertise.
Good because: You covered an area and were considered an expert in the area.
Bad because: Prospects and customers had many needs. The products you offer may not be the ideal solution.
Today: Advisors offer financial planning, investment, banking and insurance services. All of this is usually done in-house. They can be a one-stop-shop for finding solutions to problems.

3. Access to information was limited. the the wall street journal and Barrons were the main publications. The S&P Fact Sheets and Morningstar Mutual Fund Profiles were the primary research tools available to the general public. Since brokerage firms had large research departments, they had a level of knowledge only available through your financial advisor.
Good because: Councilors had something the general public did not. Access to information was part of the value the advisor brought to the relationship.
Bad because: This was good for advisors, but bad for investors, as they often didn’t have enough readily available information to trade on their own.
Today: Everyone has an abundant source of information. The challenge is to sift through it, to bring together the relevant elements. Counselors can help you.

4. You had good ideas. Since stocks were what “brokers” were identified with, advisers would always try to come up with two or three good ideas. One was growth and the other was revenue generation. You were calling clients to tell them about your idea, what made it special and why the time was right.
Good because: Advisors knew how to choose stocks, how the market and the economy interacted. Talking about “hot stocks” was what customers did at cocktail parties.
Bad because: Account sizes were often smaller back then, so diversification was difficult.
Today: Many advisors work with ETFs, mutual funds, and managed funds. Stock picking has been outsourced.

5. Advisors created positions. Because advisors called clients with ideas, they developed large positions in those stocks. People would say, “Have a hunch, buy a bunch of them.” One day in the future, you call your customers, suggest they sell and transfer the money into your next great idea.
Good because: It was easier for advisors to stay on top of a few stocks instead of having many different stocks in the portfolios of many different clients.
Bad because: If a stock didn’t work, the damage was felt on your customers.
Today: Advisors may have preferred ETFs or fund managers. They could create positions by having money from many clients directed to these managers.

6. Interest rates were high. During the 1980s, interest rates on municipal bonds reached 12.13 and 14%. Many customers would not buy bonds because they were convinced that rates were going up. As rates fell, customers were calling, asking to buy those higher coupon bonds you told them about six months ago, dismayed the current rates were much lower.
Good because: Clients could achieve double-digit returns for long periods of time.
Bad because: As attractive as these bonds may seem today, back then most people thought that high interest rates would last forever.
Today: Interest rates on fixed income securities are low. Some advisors turn to total return stocks or preferred stocks for clients looking for yield.

7. The business was transactional. Advisors were paid based on the volume of business they did. You had to generate transactions in order to get paid that month. Some advisors were active negotiators because they were good at it. Others were not, leading to churning charges. Compliance departments would review the dollar volume of commissions generated against the dollar size of the account.
Good because: You were constantly in contact with customers, sharing your ideas. The customer who bought a bond often bought more and more.
Bad because: Overtrading and churning was a real risk.
Today: Many advisors use managed funds and asset-based pricing. This puts both sides on the same side of the table.

8. Everyone was a unique practitioner. The association was very rare. There were instances where a senior advisor brought the next generation into the business. Many councilors had no intention of retiring. There was no channel to “sell your book”.
Good because: You have become good at performing all functions. You knew how to prospect, pick stocks, evaluate performance, sell insurance and trade options.
Bad because: The turnover rate for new advisors was very high.
Today: New advisors can enter the business as sole practitioners, team members, or bank advisors.


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