Why managing client expectations is still a top priority
September 15, 2016 by Andrew Welsch
BALTIMORE — Interest rates, an unprecedented presidential election, terrorist attacks – managing client expectations today can be challenging for advisers.
That’s why Brian Rogers, T. Rowe Price’s chairman and chief investment officer, likes to cite his firm’s founder: “Today is always the most difficult day to invest.”
Rogers said it can be easy for investors to become risk averse when faced with frightening events, especially given the information overload many clients face in addition to complicated investment products and strategies.
But, Rogers said, investing fundamentals still apply. Just look at the upheaval of the 20thcentury.
“It would have been very easy many times to say ‘I’m going to pull back and buy gold,'” said Rogers, who was speaking at the Financial Planning Association’s annual conference here.
Diversification, he said, is the best way for clients to feel comfortable with their investing strategy.
“If you 100% emerging markets in your portfolio or 100% gold, even if it’s a good strategy, it’s never going to make you feel good. I think diversification makes the investor feel good,” he said.
Rogers has been with the asset manager since 1982, according to T. Rowe Price’s website. The firm manages about $776 billion in assets.
BAN THIS FUND?
Planners face an uphill struggle as investors’ instincts are too often at odds with sound investing strategies, Rogers said. “I think many individuals left to their own devices will invest in what has done best most recently. And that is almost always a disaster.”
He urged advisers to help clients guard against investments or strategies that are too complex.
“Look what happen with the British pound after Brexit. It fell like an emerging market currency,” Rogers said, adding that investing strategies involving currencies are a “difficult game.”
“As advisers you should avoid that and encourage your clients to avoid that too,” he said.
Rogers also warned against highly leveraged ETFs, products he said that were too complex for the average investor.
“I really worry about dislocations in markets. I worry about liquidity impacts. If I were the Chair of the SEC or king of Congress, I would ban leveraged ETFs,” Rogers said.
Instead, Rogers, who describes himself as a value investor at heart, emphasized tried and true approaches, plus lots of due diligence.
Should clients want to buy stock of individual companies, Rogers gave this advice: “If you are thinking of investing in a particular company, then read the annual report. And I say get the paper copy and a red pen. Mark that thing up.”
Rogers also said he saw opportunities in the healthcare and consumer sectors, and he looked for long term investments. “There will always be Jack Daniels and Reese’s Peanut Butter Cups,” he said to laughter.
But even with promising investments, Rogers added a word of caution. Pointing to opportunities in emerging markets, Rogers said: “That’s a 5 or 10% bet – and not more than that because there is a possibility we are wrong about that. Maybe China is in a recession and they aren’t telling us.”
When it comes to fund managers, Rogers suggested advisers look at staff levels and tenure.
“You want to watch and look for growth in the investment staff. That’s usually a sign of organizational health,” he said.
Rogers also strongly emphasized self-education and staying current on the news.
“Every morning the first thing I read is the Baltimore Sun. Then I read the Financial Times, then the Wall Street. And that’s by 7:30,” he says.
