When Clients Have Sentimental Value For a Stock or Other Assets

Have you ever had a client who had a fairly large allocation towards a particular asset or an asset class? Either they really were attached to it, or they had some sort of sentimental value attached to it, maybe it was inherited or whatever it might be. I'm guessing that this scenario might be familiar to you.

I recently had a prospective client that I was talking to. He had 30 percent of everything that he had allocated to one particular stock. I wanted to share with you the conversation that we had and how I was able to get him to think about it in a different way as we were mapping out his retirement plan.

During the second meeting where we present the One-Page Plan, one of the suggestions was that we were going to pare down the individual stock that was currently taking up 30 percent of his total portfolio. I knew that he had an attachment to it, but he really didn't need to take that sort of risk for his plan to be successful. That's the one thing I wanted to communicate to him.

This communication tactic came from Carl Richards who tells about a client of his who had inherited a cabin that had been in his family for a couple of generations, or something like that, where there was some sentimental value attached to it. So, this tactic can work when you’re talking to any client who has some sort of emotional attachment, whether it's an asset or asset class or a stock. Lots of times it's an individual stock or sentimental value tied to real estate.

The way to use this tactic is to figure out how to remove the emotional part of the decision from the financial part of the decision. The mistake that I see a lot of advisors make is that they focus more on the financial side of the decision and not so much the emotional side. This can lead to a problem because the prospective client or the client doesn't feel like you fully understand them. And when they don't feel understood, then they’re a lot less likely to take your advice, if you give them advice.

Now, here's how the conversation with my potential client went. We started by saying, let's pretend that you woke up the next morning and somehow, magically, that stock had been liquidated in your account. Now it's sitting in cash and there's also, magically, no tax that you have to pay on the sale. What would you do now? You've got $500,000 cash sitting in your account. Would you buy back that individual stock? Would you put 30 percent of your portfolio back into this one stock at today's price? He thought about it, and then he said, well, you know, probably not that amount, but I would want to keep some of it; I do want to have something in this stock.

That initial framing led to the rest of the conversation, where he ended up getting to a percentage allocation that made sense for his plan, but it wasn't the 30 percent that he originally had. So this is a good way to separate the emotional side from the financial side and start the conversation so they can start to think about it in a different way. And then if they end up moving towards your recommendations, you can start thinking about, for example, taxes. Because in our story, that was a magical thing that happened where something was liquidated with no tax consequences. But, it's the real world and there's tax consequences. And then you can move on from there.  

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