Communications glitches between advisers and clients

In one of my favorite Far Side cartoons, a dog owner is talking to the dog in English, but all the dog is hearing is “Blah, blah, blah, Ginger.” Some of the most engaging practice stories arise from “communications glitches”: things we tell clients that they don’t hear or don’t remember; things we don’t think to tell them; and things they forget to tell us. Here are a few such glitches.

Every time Al and I met, I would tell him that his company stock was too big a portion of his total portfolio. To him the stock was a job perk that was going to soar as the company prospered. Of course he might have been right about that — but to me, the stock was also a big, concentrated risk. He planned to sell the stock in three years when his son started college to cover tuition. I told him I didn’t like having money at risk if it was going to be used within four or five years and I recommended (again) that he start liquidating at least part of his position. He was determined to eke out all possible growth.

Then one day he called to say the company had hit a major market bump, earnings projections had crashed, and the stock was down about 35%. What should he do? All I could offer him now was the choice between dumping the stock in case it dropped further or holding on to it in hopes it would recover in time. 

HOME EQUITY LINE OF CREDIT

As clients pay down or pay off their home mortgages, I generally advise them to get a home equity line of credit. The HELOC lets us have less liquidity in the portfolio because it provides instant access to cash if it's needed, and at a lower cost than margin borrowing. I tell them I don’t want them to use the line, I just want them to have it for emergencies.

I was on vacation, hiking in the White Mountains of New Hampshire, when Marc called to say he needed $200,000 so his daughter and her husband could nail down an extraordinary house-buying opportunity. They couldn’t raise the money fast enough themselves but would be able to pay him back in three to six months. I said we could sell his bonds, but we would also need to liquidate some stock, which would incur taxable gains.

“Why don’t you use your line of credit?” I asked. “You could have the money instantly with no tax consequences.”

“Oh,” he replied, “I did open one when you told me to, back when we started working together, but then I wasn’t using it so when it expired, I figured I wouldn’t bother to renew it.”

DONATING STOCK TO CHARITY

A thoughtful, attentive client reported to me at one meeting that he had sold some stock that had done well and had put the proceeds into his charitable gift fund. I congratulated him on his investment success and complimented him on his charitable nature ... and mentioned that next time he might contribute the stock itself rather than selling it, so he could escape the capital gains. “Aha,” he said, and I could see him storing that information away. 

A year or two later he told me he had made another contribution to his charitable gift fund. This time, though, he had some stock that had performed poorly. Remembering our earlier conversation, he had donated that stock instead of first selling it. Unfortunately, when I had explained the gains strategy, I hadn’t thought to tell him about losses. This time, if he had sold the stock, he would have had a tax loss to offset against capital gains.

[More: Communicating what’s really important]

FUNDS TRANSFER

Finally, a client who occasionally took distributions asked me to transfer her some money. “To your Bank X account?” I asked, mentioning the bank we had used previously. “Yes.” 

I made the transfer. A few days later, she called to say she hadn’t gotten the money. Then custodian notified me that the transfer had failed. This was puzzling. We had made similar transfers before without problems. 

Finally, as I questioned my client more thoroughly, we came up with the explanation. Months earlier, she had lost her purse, and with it, her checkbook. She moved everything to a new bank account and closed the old one. Then she forgot all about it. Mystery solved!

[More: Getting through to confused or fearful 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.