Clients both happy and unhappy

Everyone has happy and unhappy clients. My happiest client thinks I’m a true investment genius. My unhappiest is, of course, no longer my client.

First, the happiest client. Jeff had a long career running a unit for a big local company. Eventually there was a change in top administration, and he got a new boss who didn’t like him. Instead of firing him, she gradually took away all his assignments, hoping to make him quit. By the time he came to me in 2007, he was reading two or three books a week on the job. He said he was trying to hold on as long as possible because he knew he didn’t have quite enough saved for retirement.

We worked out a financial plan for what we expected would be his eventual employment demise. Most of his net worth was in the company’s cash balance retirement plan. Each pay period, the company contributed to his CBP account based on his salary and years of service, and also credited him with a fixed rate of growth on principal, averaging around 3%. As a long-term employee with a good salary, he had accumulated a substantial balance — over $1 million — in the CBP. When he left the company, he could take the account value as a lump sum (ideally rolled over to an individual retirement account) or as an annuity (but not a mixture of the two). 

Jeff’s boss finally pulled the plug on him in August 2008. We started the paperwork to roll over the CBP and opened an IRA to receive the money. Since he had been getting a fixed return on the account and wasn't used to market fluctuations, I suggested that we start out on the conservative side, with half the money in a broad-based stock basket and half in fixed income. This arrangement would give him growth potential with some stability.

Fortunately for Jeff (and for me, as his adviser), the cash-out process moved slowly, so he didn’t get funded until November. In the meanwhile, we had the 2008 crash. Since the CBP was not tied to the market, Jeff’s account didn't fall. And instead of investing at a high point, we bought in around the bottom. Jeff happily rode the market recovery back up, doubling his stock component and cementing his retirement finances.

Now for the least happy clients. Erica and Julian approached me in 2005 when they were in their mid-50s. She was an academic and had accumulated a lot of retirement money at TIAA-CREF, most of it in TIAA Traditional (fixed income). He was self-employed and had about $360,000 in retirement savings, largely in money market and fixed-income funds. They thought it was time to try investing in stocks. They liked the TIAA account and weren’t ready to think about making changes there but hired me to manage the other retirement money. This was a little small for me, but they said they would be open to giving me responsibility for managing the TIAA money later if things worked out well between us.

I worried about them during the 2008 crash, but they weathered it well. Gradually, though, they became concerned about a global economic collapse, with Greece or Italy defaulting and throwing the world into global recession or depression. In late 2011 there was a small market correction that felt to them like the start of another 2008. They stopped seeking my advice and instead gave me a series of increasingly conservative investment instructions that I initially tried to talk them out of but eventually had to give in to. They moved everything to a one-year bond fund and then, when that had too much risk for them, they instructed me to go 100% to FDIC-insured cash. Now they had virtually no return on their money, and no potential growth. 

I wondered whether to terminate them as clients, since they weren’t interested in my advice, weren’t using me for any real investing and weren’t making any money. I decided to give them a little time and see what they would want to do. I figured either they would return to real investing or would give up and move into bank CDs. 

So I wasn't too surprised a few quarters later to get a call from Julian saying they were leaving me. I was surprised, though, that they had decided to move to another manager, since I thought I had been doing exactly what they wanted. I wished them good luck and, out of curiosity, asked what had prompted the move. Julian said they were dissatisfied with the rate of return on their portfolio and had found someone who could do better. I didn't bother to point out that they had picked the investment — or that higher expected returns are always available, but inevitably at higher risk.

[More: Communications glitches between advisers and clients]

Michael Broad is a financial planner and investment advisor in Newton, Massachusetts. Got a good client story or problem you’d like to see in a future column? Email Michael Broad.