#aicpapfp effective communication aicpa pfp conference january 17-19, 2015 harold evensky cfp, aif
TRANSCRIPT
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#AICPApfp
EFFECTIVE COMMUNICATION
AICPA PFP CONFERENCEJanuary 17-19, 2015
Harold Evensky CFP, AIF
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# AICPApfp
9 KEY POINTS OF
COMMUNICATION
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# AICPApfp
KEY # 1 THE “WHAT”
Philosophy
Process
People
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# AICPApfp
PHILOSOPHY
We believe …
• Cash Flow not Dividends & Interest
• Capital Needs with Reasonable Assumptions
• Goals Based Planning• Tax Constraints• Efficient Market Hypothesis
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# AICPApfp
PHILOSOPHY
We believe in…
• Value• Active AND Passive• Asset Allocation largest
determinate of LT Return• Future Markets and Returns
will be Modest• A Written Investment Policy
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# AICPApfp
PROCESS
We are fee-only and therefore minimize conflicts
We work in teams
We use goals-based capital needs analysis with forward looking assumptions
We distinguish between risk tolerance, risk capacity & risk need.
We use the financial planning process
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# AICPApfp
PEOPLE
We believe in Credentials – all advisors hold the CFP designation
Our practitioners adhere to a Code of Ethics & a Fiduciary Relationship
We believe in staying current with academic research
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# AICPApfp
KEY #2ESTABLISHING VALUE
The Creak and the Carpenter…
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# AICPApfp
KEY #3 - THE “WHO”THE PUBLIC
The Public Relations “B’s”• Be Aware• Be Available• Be Interesting &Controversial• Be Dependable• Be Professional• Be a Resource• Be Proactive• Be Patient
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# AICPApfp
KEY #4 – THE “WHO”THE PROSPECT
What Brings You Here?
Tell me About Yourself…
Let’s Have Fun. Let’s Play Cards!
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# AICPApfp
KEY #5 – THE “WHO”THE CLIENT
PROACTIVE
Responsive
Reinforcement Through Frequent, but Not Overwhelming Communications
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# AICPApfp
KEY #6 - THE “HOW”BEHAVIORAL FINANCE TECHNIQUES
In Classical Finance Investors are Rational; In Behavioral Finance Investors are Normal, but Predictable
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HEURISTICSHEURISTICS
MENTAL SHORTCUTS
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OVERCONFIDENCEOVERCONFIDENCE
COMPARED TO OTHERS IN THIS SESSION, ARE YOU:
AN ABOVE AVERAGE ADVISOR?
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REPRESENTATIVENESS
IF IT LOOKS
LIKE A………………...
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REPRESENTATIVENESSREPRESENTATIVENESS
HHTHTTTHTH
TTTTTTTTTT
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REPRESENTATIVENESS REPRESENTATIVENESS
MORNINGSTAR GAVE THIS FUND...
IT MUST BE GOOD
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MENTAL ACCOUNTINGMENTAL ACCOUNTING
HOT TECH STOCK - IFGOVT. SAYS GO…90%
PROTOTYPE GOOD……………………….. 90%
REGIONAL TEST OK………………………..90%
NATIONAL ROLLOUT………................…...90%
DO YOU INVEST?66%
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MENTAL MATHEMATICSMENTAL MATHEMATICS
LAST YEAR, I MADE 80%
AHEAD 20%
BEHIND 28%
THIS YEAR, I LOST 60%
THEREFORE I’M
MENTAL MATH
REALITY
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# AICPApfp
KEY # 7 – THE “HOW”FRAMING
Which would you rather have?90% Fat Free10% Fat
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WOULD YOU BUY THAT
STOCK TODAY?
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FRAMINGFRAMING
NAME THE TOP 10
BASEBALL PLAYERS
PAINTERS
MOVIE ACTORS
MONEY MANAGERS
DRESS DESIGNERS
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FRAMINGFRAMING
CONTAGEOUS ENTHUSIASM
WHAT COULD GO WRONG?
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FRAMINGFRAMING
IF YOU ARE RIGHT, YOU’LL MAKE A HANDSOME PROFIT.
IF YOU ARE WRONG, YOU’LL NEED TO WORK 3 MORE YEARS.
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FRAMINGFRAMING
CONFUSING CERTAINTY & SAFETY
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FRAMING
RISK AVERSE VS. LOSS AVERSE
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# AICPApfp
Most Least
Capital Preservation 6 5 4 3 2 1
Growth 6 5 4 3 2 1
Low Principal Volatility* 6 5 4 3 2 1
Inflation Protection 6 5 4 3 2 1
Current Cash Flow 6 5 4 3 2 1
Aggressive Growth 6 5 4 3 2 1
KEY # 7 – THE “HOW”EDUCATION & EMPOWERMENT
GOTCHA!
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# AICPApfp
REALITY
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# AICPApfp
REALITY
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# AICPApfp
KEY #8 InteractivityKey # 8 Engage the Client
WANT TO CHANGE?
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# AICPApfp
WHAT KEEPS YOU AWAKE?
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# AICPApfp
THE TOTAL PORTFOLIO
CASH FLOW RESERVE
THE INVESTMENT PORTFOLIO
THE E&K CASH FLOW STRATEGY
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# AICPApfp
CASH FLOW RESERVE
THE INVESTMENT PORTFOLIO
1 YEARS CASH FLOW 5 YEARS LUMP SUM
BALANCE OF PORTFOLIO REINVESTMENT OF ALL INTEREST & DIVIDENDSADJUSTED AS NECESSARY FOR OPPORTUNITY COSTS
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# AICPApfp
CASH FLOW RESERVE
THE INVESTMENT PORTFOLIO
PERSONAL CHECKING ACCOUNT
RebalanceRefill
Regular Monthly Payments the “PAY CHECK”
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# AICPApfp
BAD NEWS IS GOOD NEWSGOOD NEWS IS BAD NEWS
KEY #9 – THE “HOW”
ACKNOWLEDGE THE ELEPHANT
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# AICPApfp
BAD NEWS
ACKNOWLEDGE
Frame Reality
Long Term View
Outline consequences of change at this point
What might go right
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# AICPApfp
FOLLOWING A 36 ½% LOSS IN LESS THAN TWO YEARS
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# AICPApfp
GOOD NEWS
Outlining consequences of change at this point
What might go wrong
TEMPER THEIR ENTHUSIASM
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# AICPApfp
FOLLOWING A 26.4% GAIN IN 6 MONTHS
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# AICPApfp
TOP
TAKEAWAYS
The 3 P’s
Value vs. Performance
PR – Don’t Forget the Public
Use Behavioral Finance Techniques and Framing
Educate & Empower
Remember What It’s All About