When you interview your potential clients, ask these 5 questions or you might be in for more than you delineated in your Client Agreement. You get to interview and screen your potential clients as much as they will be screening you. Don’t sign up anyone who can “fog a mirror.” You’re not as desperate as you might think for the assets, and there must be a good fit between you and the client emotionally.
1) Have you ever had to sue a manager or take them to arbitration? What happened?
There is a class of investor that sees you coming from a mile away. Make sure that you stay away from them. It goes without saying that you must have your own business and documents in order. The major Broker/Dealers and FCM’s keep a list of such clients and they’ve been know to NOT open accounts for them when they recognize the SSN or Tax ID number.
2) How long have you been with your Investment Advisor? What do you like best about that relationship? What could be better about it?
If they are promiscuous with their advisory relationships, what makes you think it will be different this time because you are in the equation? It won’t be. Don’t sign up this time-waster. You can’t build a solid asset base off this jackass nor a reliable revenue stream. Leave the drama of the hair-trigger hiring and firing for another manager.
3) How soon are you going to need the funds that you are considering investing with me and my program?
If they want to buy real estate during the “next leg down” in a major city, don’t sign them up. They’ll need the money in the middle of a drawdown and you’ll never hear the end of it. I recommend that you make sure they can leave the money with your for 5 years minimum.
4) What percent of your overall investment pie does this money represent?
If this is more than 5% of their liquid net worth, be wary…it might be fast money…and that type of money leaves as fast as it comes in. You don’t want to build a book of guys who want 400% annual rate of return. They feel that this is readily attainable and moreover that they should not have to withstand more than a 10% drawdown to get it. Follow your rules, not the gambling habits of some moron who has no clue about how to run money responsibly.
5) When would you like to schedule your monthly update call with me — beginning of the following month or at the very end of the current month?
You don’t want to have clients that have an emotional need to speak with you daily. They are neurotic, spend the day watching financial TV, and don’t realize that calling you is a major distraction and actually harms your performance. Cut them loose or don’t sign them up in the first place.
Speaking with you every morning is not going to make your systematic not discretionary rules work better. Ask them to find a way to satisfy their needs without calling you.
Just because there is a high-net worth person, who has sizable liquidity, who likes you, and who wants to give commodity trading/managed futures a try, does not make them necessarily a good candidate for you to work with.
All good points. It’s very tough to predict what any investor will do, ( ie 2008′ when ctas who were up still saw significant redemptions) but these points should help you filter out some of them. The better your performance, the less client headaches—generally speaking.
On a personal note, I decided not to take on clients years ago. That was the best decision I ever made.
I don’t blame you in the least. You probably have a much better quality of
life this way.
I wouldn’t dispute that either. If you don’t have to, it’s the best option by far.