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That Call

What do you say when a client calls in a panic and says he or she wants to go to cash?  How do you handle that?

Rick Kahler, of Kahler Financial Group in Rapid City, SD, has a unique way of helping his clients move from an emotional to a rational decision-making process whenever he receives ‘That Call.’

“I say: Yeah, we can do that,” he says. “I give them no resistance at all.”

This will normally catch the client completely off-guard.  The typical response is: ‘Oh.’  Followed by silence.

“Often they start backpedaling right away,” Kahler says, “because of course they know the drill.  They know what I think about that idea.  But I just say, we can absolutely put you to cash.”

There’s strong psychology at work here.  When Kahler immediately gives in, it prompts the clients to want to process the decision more fully, and it engages their rational brain.  They can no longer rely on the pre-planned arguments they had been expecting to have to offer.

“When you take the resistance off the table,” Kahler explains, “then the fight isn’t on.  They are expecting to hear: Oh, hang in there; you don’t want to do that; here’s what the research says…   But what they’re really wanting is be heard. 

“So if they aren’t already talking,” he adds, “I say: ‘You’re scared to death.  I get it.  I kind of am too.  And if you need to go to cash, no problem.  We’ll do that.’”

He has never had anybody say: ‘Oh good; go do it.’

The client will talk about fear, about his or her prediction that the market is going to continue to decline, the world is going to hell in a handbasket, he or she can’t afford to sustain any more losses, it’s hard to sleep at night.  Kahler will listen to all of that and offer sympathy and reinforcement.  After all, these ARE scary times.

Then he’ll proceed to the business at hand: the mechanics of retreating to cash.  “If they don’t say ‘never mind’ at that point, I’ll start by telling them that there are just a couple of things I’d like to cover,” says Kahler.  The conversation might look like this:

You’re drawing out of your portfolio, right?


How comfortable are you drawing down your principal?  Are you okay with that?

Well, not really.

From there, the conversation can proceed to a more rational discussion of the long-term reasons for owning stocks and the potential perils of market timing.  In most cases—in fact all but one so far—the client will talk him/herself into staying the course.

This process is not absolutely foolproof, however.  Kahler did have one person persist in wanting to retreat to the sidelines. 

“I asked my question about drawing down principal,” says Kahler, and I was surprised to hear him say: ‘Yeah, we can live on our principal.’”

Okay.  So Kahler proposed that the two of them think about some areas where they might be able to get some return.  He looked up what money markets are paying currently and talked about what the client could get from CDs.  High yield bonds are offering nice yields.  Maybe just a little bit of those would be good.  And REIT yields are not terrible.

“We kind of walked through it and talked about, if we did this and that, maybe we could get up to 3-4 percent yield,” says Kahler.  “And then at some point, I said: ‘You know what just hit me?  This portfolio we’re coming up with going to cash is looking a bit like the one we’re leaving.’”

This person accepted a revised bond/REIT/CD portfolio at a time when the markets were down 21%.  Kahler emailed him right after the market had reached negative 30%.

“I said, you’re up about $400,000.  If you got back in right now, you’ve won,” Kahler says.  “Because isn’t that always the question, is: when to get back in?

The client hemmed and hawed, and then the market went back up, and he called, and suggested that he and Kahler should have another talk.  “He got back in at the exact level he got out,” says Kahler.  “But he has gone from a 60/40 mix to about 30/70.”

If the markets have another free-fall, you might remember this very simple way to help clients process their emotional decision without turning it into the conflict that they’re expecting.

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