Financial advisors are often lauded for their investment acumen. Frequently, their biggest value is in saving clients from their worst impulses.
Indeed, top advisors on CNBC’s annual Financial Advisor 100 list have received ample requests for strange, risky or outright dumb investments during their careers — and, if left to their own devices, clients may have otherwise lost hundreds of thousands or millions of dollars.
“People still hope for the home run — that this scheme or this idea will set the world on fire,” said David Rea, president of Salem Investment Counselors in Winston-Salem, North Carolina, which ranked No. 2 on this year’s FA 100. “And they can be sold.”
About 20 years ago, a longtime client approached Rea with a supposedly winning idea: buying coin-operated pay phones.
Cellular communication, then ascendant, was a fad, and pay phones would come back in vogue once Americans lost interest, he believed.
The client, a retiree, was willing to stake his entire individual retirement account, worth $1 million, on the venture.
Of course, Apple debuted the iPhone in 2007 and the rest is history. About 97% of Americans own a cell phone of some kind; 85% of them have a smartphone, up from 35% in 2011, according to the Pew Research Center.
Meanwhile, just 5% of the 2 million pay phones in the U.S. in 1999 are still around today.
“It would have been a life changer,” Rea said of the client. ”[His account] would have gone to zero.”
Luckily, Rea was able to dissuade the person from investing. He’d been pitched the pay-phone idea by an individual who’d promised lofty returns; the hype man also had a spotty disciplinary record and couldn’t furnish a prospectus with basic investment information, Rea said.
All three are telltale signs of potential trouble.
“I was able to talk the client off the ledge, thank goodness,” Rea said. “Sure enough, I think cell phones have caught on.”
Sometimes, advisors can only do so much to curb a client’s animal spirits.
In the 1980s, a client of Mark Mirsberger bought hundreds of thousands of dollars’ worth of physical silver, over Mirsberger’s objections.
“The world is ending, I need silver,” recalled Mirsberger, CEO of Dana Investment Advisors in Waukesha, Wisconsin, which ranked No. 1 on CNBC’s FA 100, of the client’s thought process.
“Thirty years later he called us and said, ‘I have these bags of silver coins. How can I get rid of them?’” Mirsberger said.
Mirsberger located a coin dealer; after a 2% to 3% commission, the silver was worth less than it was 30 years earlier.