Author Archives: John Ndege

About John Ndege

Founder of Risk profiling software for financial advisers.

Educating Your Clients About Risk [Free 6-Part Email Course]

Educate Clients About Risk

At Pocket Risk we like to create tools to help advisors do their jobs better. Every day we speak to advisors about risk and a common comment is the need to educate their clients. As a result we put together this free 6-part email course on educating clients about risk. Sign up below. We won’t spam you and you can unsubscribe at anytime.



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3 Ways Financial Advisors Can Win Generation X & Y Clients

Generation YLet’s get personal. I was previously an employee at Facebook and just like many other Silicon Valley employees I was offered equity in the business as part of my compensation. When the company IPO’d I suddenly had money to invest, along with many of my colleagues. I and many of my colleagues would qualify as great generation Y clients.

At the time there were endless conversations about what to do with this money. One of the first was whether to get a financial advisor, use a web-based investment service like Wealthfront or invest it ourselves.

Advisors were treated with deep suspicion. Numerous employees had already been contacted by big-name private wealth management firms via LinkedIn which left them feeling like a prize to be won rather than a client to be cared for. You can see this mentality in this New York Times article. Most people didn’t know the difference between a RIA, Broker-Dealer, Fee-only or Commission based advisor. So what do well educated people do when they are stuck? They ask a friend and read a book!

The most commonly referred book is Burton Malkiel’s “Random Walk Down Wall Street”. After reading this book everyone becomes deeply suspicious of active investing and fees. This naturally leads them to Modern Portfolio Theory, Vanguard and that unforgettable quote by John Bogle – “In investing, you get what you don’t pay for”.

I’ve critiqued Modern Portfolio Theory before, so I won’t go into it now but suffice to say, if advisors are going to succeed with Generation X & Y clients they need to short-circuit this fallacy that successful investing is simply about diversification and low fees. I’ll tell you what I think successful investing is about a little bit later.

So what about the web-based investment firms like Wealthfront? Don’t they bring the promise of an advisor with very low fees? To some extent yes but many in Generation X & Y are still of the opinion they can do the same thing in an Excel Spreadsheet minus the benefits of tax loss harvesting (although Michael Kitces has debunked these benefits somewhat).

So what’s an advisor to do? Here are three ways advisors can win Generation X & Y clients.

1. Short Circuit The Fallacy That Successful Investing Is Just About Diversification and Low Fees

Successful investing is about many things before diversification and fees. It involves planning and setting goals. It involves discipline. Spending less than you earn and staying the course. It involves education. Improving your financial IQ. When the next crash comes I like to wonder how many people will yank their money from the web-based investment managers because they had no plan, no discipline and no education. Here lies the unique selling point of advisors to Generation X & Y clients, their ability to act as a coach. To teach, to instruct, to challenge, to refuse. After all, investing is a means to an end right? And good advisors help make that clear.

2. Don’t Just Protect My Money, Make Me Money

When I speak to people in Generation Y they are very much in the accumulation phase. Once they know the basics of investing they want to learn how to make money not just park it into a mutual fund and stay the course. Increasingly they are turning to people like Todd Tresidder also known as the Financial Mentor to learn more about making money. I believe one of the most overlooked skills in our industry is the entrepreneurial skill of advisors. They have often set up their own businesses and become a success in their own right. Yet I see few advisors teaching entrepreneurial skills to their clients. An advisor who can help me increase my income not just protect a nest egg I have already built would be truly invaluable and unique.

3. Branding and Presentation

When I was growing up my mother said that I should always shine my shoes before I leave the house. I would be judged by their presentation. That was my mother’s generation, today we judge people by the quality of their website. It may seem small but it’s not. A bad brand and website turns people off and yet when I speak to advisors (every day) they often start our conversations by apologizing for the quality of their website. If it’s been on your to do list for a long time, get it done.

If there is one more thing I would add to the list it is marketing (which will be the subject of a much longer post to come soon). To conclude I sincerely believe advisors can capture Generation X & Y clients but they will have to significantly change the way they do business. The value of advisor to my generation is not in managing money it is in the coaching.

Image Credit – LinkedIn

List Of 58 Technology Tools For Financial Advisors

List of 58 Technology Tools For Financial AdvisorsSometimes you are looking for technology tools for your business and don’t want to spend the whole day “googling” around. So we polled some of our customers and asked our network for a list of technology they were using. This is what we heard (in no particular order).

Let me know if there are other tools worth adding.

Customer Relationship Management (CRM)

Morninstar Office
Sugar CRM
Microsoft Dynamics
Solve 360

Financial Planning Software

Money Guide Pro
Money Tree Software
eMoney Advisor
Finance Logix

File Sharing & Document Management

Google Drive
Office 365

Online Meeting Scheduling


Virtual Meetings


Social Media Management

Sprout Social

Email Archiving

Google Vault
Live Office

Newsletter Delivery

Vertical Response
Campaign Monitor
Constant Contact
Active Campaign


Google Apps
Office 365


Virtual PBX


Total Rebalance Expert
RedBlack Software / Rebalance Express

Password Management

Last Pass
Roboform Everywhere
Kaspersky Password Manager

Portfolio Stress Testing

Hidden Levers

Investment Policy Statements

IPS Advisor Pro

Data Gathering


Lastly a small plug for own risk tolerance questionnaire Pocket Risk.

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Skeptical Quotes From Financial Advisors On Risk Tolerance

Risk ToleranceOver the last 16 months I’ve spoken to 248 financial advisors about understanding their clients’ risk tolerance. Most see the importance of this task but occasionally you will find a skeptic. Someone who doubts the process will yield anything valuable. Below I share the most common quotes I hear from advisors.

“A person’s risk tolerance is largely irrelevant to the investing process. We invest on client’s needs and goals.”

We agree that investing should by needs driven. However,  we don’t think a person’s risk tolerance is largely irrelevant. Obviously we have our biases but let’s step back for a second. Understanding a client’s risk tolerance is not just about you. It’s also about a client understanding themselves and being better educated about risk. A client who is better educated about risk and return is more likely to stay the course. Less likely to want to buy at the top and sell at the bottom. For one this makes a client easier to manage. Additionally, understanding a client’s risk tolerance can tell you how many bumps in the road they can withstand. It’s all well and good to know a client needs a 8% annual return to meet their goals but if the volatility required to get them there sees them selling up then the are in serious trouble and so are you. Constructing the right financial plan is not just about the destination but the journey.

“A client’s risk tolerance changes depending on life events and market conditions so any measurement quickly becomes obsolete.”

We agree that a person’s risk tolerance can change, though it’s largely a fixed psychological construct. Major life events can see a shift but it doesn’t happen quickly and often. At Pocket Risk we usually recommend our customers test their client’s once a year. Recently there has been a body of work that says we need to distinguish a client’s risk perception from their risk tolerance. It’s something we are investigating at Pocket Risk and hope to write more about in the future. The argument goes that a person’s risk tolerance barely changes but their perception of risk fluctuates. So, if the market is doing well they think risk is low but when it is performing poorly the risk is high.

“I have a face to face discussion process that works well. Why do I need a questionnaire?”

Frankly, you don’t HAVE to have to use a questionnaire it just makes the process a whole lot easier. This is because it provides a consistent, objective and documentable measure of risk tolerance it helps standardize the approach across your firm and helps meet your compliance needs.

If you have any thoughts or comments on this I’d love to hear them.

Image Credit – Flickr

All Around The World Labor Is Loosing To Capital

EconomistEarlier this week I came across a great article in the Economist titled “Labour Pains”. It tells a story of something we already knew but were lacking statistics.  All around the world labor is loosing out to the power of capital. Technology in particular has caused this development while the impact of cheap foreign labor is probably oversold. For advisors and clients and those with capital it is critically important to maximize its utility to the full as the returns for labor start to diminish.

Enjoy the read….

ProVise: “The 3 Things Advisors Must Focus On To Be Successful” – Barron’s Top Advisor [INTERVIEW]

Ray FerraraI recently interviewed Ray Ferrara of ProVise Management Group LLC.  He is the President and CEO of a Barron’s ranked financial planning and investment firm based in Florida.

John: Can you give us some quick background on ProVise?

Ray: Sure, first and foremost ProVise is a financial planning firm. We do investment management but we view that as a subset of financial planning. We have 11 planners and work with about 780 families. In total we manage about $900 million. All of our team are well qualified professionals many of which have the CFP (Certified Financial Planner) designation.

John:  How did you become a financial advisor? What brought you to this industry?

Ray:  I have to go way back to tell that story. I graduated in 1970 with a degree in Zoology and went to work selling computers for IBM. A friend of mine was working in the investment business and persuaded me to get involved on a part time basis. By September 1971 it became my full time occupation where I worked for an investment firm. Eventually, I went on to start ProVise in 1986 and I haven’t looked back!

John: Barron’s recently ranked your firm as a top advisor. What distinguishes your firm from others?

Ray: Going back to what I said earlier I would emphasize we are a financial planning firm first and investment management is a subset of that. We form close relationships with our clients helping them bail out their children, deal with health issues and estate planning. Year over year we only loose about 3% of our client base and that includes those who pass away.

John: What would you say to those advisors who believe investment management is not a subset of financial planning?

Ray: I would gently and politely tell them that there is nothing wrong with specializing in investment management but that is not the same as financial planning.

John: What software, tools and techniques do you use to ensure you remain successful?

Ray: Technology is crucial to our business. It’s important that technology platforms are user friendly for clients and advisors. We use Portfolio Center for portfolio management and we use Junxure for our CRM. We also believe social media can play an important part in our business and are slowly doing more in that area.

John: Your firm has been very successful but what challenges do you face on a day-to-day basis?

Ray: You can be a financial planning genius and still fail if you cannot properly run your own business so that is important. Additionally there is always work trying to keep up with the regulators. That’s crucial. Finally as our company grows and scales its been important for us to hire the right people who share our values.

John: What software and tools do you think are missing in the industry?

Ray: Probably what is missing is a technology standard so all software can speak to each other.

John: Lastly, What do you think advisors need to focus on in the future to be successful? 

Ray: There are three things advisors need to focus on moving forward.

1) They must disclose conflict of interests.

2) They must maintain their level of education through something like the CFP designation, which has a continuing education element.

3) The must subscribe to a code of ethics that puts the client ahead of themselves and thus give a fiduciary standard of care. Advisors who do not do all three will fall behind those who do.

John: Thanks Ray, it’s been great speaking to you.

The Biggest Scam In The History Of Mankind [VIDEO]

Federal Reserve

The Federal Reserve, the Treasury, the entire banking system is a scam. At least according to Mike Maloney a self taught economist and gold bug. In this video he breaks down step by step why the entire financial system seems to enrich those at the top and rob those at the bottom.

I am not in the habit of sharing videos from crazy people and I am not starting now. There is a lot insight and value from Mike’s video. Check it out.

A Response: A Better Way To Measure Risk Tolerance

Joseph TomlinsonI recently read an excellent article by Joe Tomlinson of Tomlinson Financial Planning titled “A Better Way To Measure Risk Tolerance”. The article criticizes some of the existing risk tolerance questionnaires that financial advisors use. However, unlike most critiques he actually gave suggestions of how the industry can move forward. Specifically he stated questionnaires need to “anticipate how the client will react emotionally to the inevitable stresses that occur in the course of all financial plans“.

While building Pocket Risk I’ve spoken to 78 financial advisors across the country and the most common demand regarding risk tolerance questionnaires was the ability to understand how a client would react during a downturn. I heard innumerable stories of clients who seemingly had a high risk tolerance before the financial crisis but bailed when things got tough. Advisors want to anticipate the behavior of their clients so they can coach them and recommend  appropriate portfolios.

Below is a look at Joe’s criticisms and how we have addressed them in the Pocket Risk questionnaire.


Joe talks about the importance of emotion in financial decision making and how the person going through a downturn could be completely different from the cold and “rational” individual who completed the questionnaire in the past. A Dr Jekyll and Mr Hyde effect.

In our questionnaire we’ve tried to stimulate emotion in a number of ways. For example in question #3 below…

QUESTION: In 2008 the U.S. stock market dropped by approximately 37%. This meant that $100,000 invested in the U.S. stock market at the beginning of 2008 was worth $63,000 at the end of 2008.

If a similar event were to occur again in your lifetime, what would you do with your investment? 

POSSIBLE ANSWERS: I would sell my entire investment, I would significantly decrease my investment, I would slightly decrease my investment, I would neither buy nor sell, I would slightly increase my investment investment, I would significantly increase my investment, I would double my investment.

What we are doing here to stimulate emotion is to talk about dollar amounts not just cold percentages. Additionally, the 2008 crisis is an emotional event for many  in the recent past and we are attempting to stir emotions as they answer this question. It would not have the same effect if we talked about the crash of 1929. Perhaps we could have done more by asking people what they actually did in 2008 but not everyone was invested in the market so that question would not apply to everyone.

Loss Aversion

In his article Joe cites research from Michael Finke and how loss aversion can be a good predictor of a client’s risk tolerance. In Joe’s words “Respondents who tended to focus more on potential losses rather than potential gains from taking investment risk showed more propensity to bail out in down markets.” At Pocket Risk we agree with this analysis and thus included the following question…

QUESTION: I am more concerned with maximizing returns than minimizing losses.

POSSIBLE ANSWERS: Strongly Agree, Agree, Somewhat Agree, Undecided, Somewhat Disagree, Disagree, Strongly Disagree 

As you can see it gets right to the heart of the issue of whether a client is more interested in gains or avoiding losses. We also include a question regarding a client’s wishes to keep up with inflation or surpass it.

Stock Market Believers

Joe moves on to talk about the experience he had with his clients and how the  those “whose confidence was rooted in the belief that the stock market would be a good investment over the long term and that losses would typically set the stage for later gains were mostly able to weather the storms“. Again we’ve tried find these individuals through a number of questions. Here is an example…

QUESTION: It is possible for some investments to undergo long periods of underperformance. For example, the average annual return for the U.S. stock market between 2001 and 2010 was approximately 2.2%, including dividends. The average annual return for the U.S. stock market between 1950 and 2000 was approximately 14.4%, including dividends.

To what extent do you agree with the statement “I am willing to maintain my investment during long periods of underperformance.”

POSSIBLE ANSWERS: Strongly Agree, Agree, Somewhat Agree, Undecided, Somewhat Disagree, Disagree, Strongly Disagree.

The 2.2% return from 2001 to 2010 was abysmal. The the majority of people who would continue to stay the course during such a period of underperformance are most likely to be stock market believers. When we tested this question with a sample of Americans we found it to be a good predictor of risk tolerance.

Other Points

At various points throughout the article Joe makes some important observations. Such as how an IPS (Investment Policy Statement) can help clients through downturns or how new applications of brain science can improve the level of questioning. He then goes on to make a very important point that risk tolerance and risk capacity are different constructs and should not be muddled into one approach. We totally agree. Our focus is on risk tolerance and we believe our tool solves many of the problems Joe outlined in his article.