Clients Threatening To Leave

Imagine this…

You own a very successful business thanks to the rock solid relationships you’ve built with your clients and then they threaten to walk if you don’t bend for them.

What should you do?

Do you acquiesce or dig your heels in and say “NO”!

Obviously it depends on their demands.

But what if their demands could ultimately harm them?

What then?

That’s the rock and hard place a lot of fund managers have been in recently.

Here’s why…

Last October, the stock market looked like it was about to tank so most fund managers were cashed up to their top pockets ready for the fall.

And then Jerome Powell, Chairman of the US Federal Reserve, blind-sided them with one devastating sentence.

“Expect 2-3 rate cuts in the next year.”

That news was heaven sent for mortgage holders but not the fund managers.

Immediately the markets made a massive U-turn and the managers were caught with their pants down.

The problem was most of them remained ‘under-invested’ because they didn’t expect the rally to last past Christmas. But it did, thanks to the AI and tech stock frenzy.

And that’s when a stream of ultimatums started landing in their inboxes… “Invest or we’ll walk!”

Put simply, their clients were unhappy about missing some of the juicy gains being made on the stock market and they wanted in!

The other problem was the market was now red hot and very expensive.

Eventually the managers folded because they could see billions walking out the door…which would have taken a long time and a lot of money to get in the door.

Their justification was simple…they either risk losing all their client money now if they walk or risk losing some of their money later if the market corrects.

So they pinned their ears back and began investing the squillions sitting in cash, quickly pushing the market to Everest like highs.

But it gets better…

Some of these managers started chasing the market with borrowed money, just to make up for the gains they missed a few months ago!

Unfortunately fund managers are notorious for mistiming the market, mostly due to their client mandates. Hence the reason 87-92% of managers ‘underperform’ in any given year.

And now it looks like history is about to repeat itself.

Towards the end of 2021 a swarm of fund managers drained their cash accounts and invested near the top of the market believing we wouldn’t get a rate rise until 2024.

And now they’ve used the same playbook. They’ve chased the market expecting we’ll get a rate cut shortly.

The problem is, last week Jerome Powell backflipped on his October promise.

He said, “not to expect a rate cut anytime soon.”

Last quarter clients were threatening to walk if their managers didn’t invest.

But that threat would’ve changed this week…make sure you’re dancing near the door when the music stops.

Gee’s, it’ll need to be a whopping big door!

Perhaps they should leave now.

Have a great weekend!

Adam

Please note – the fund managers I’ve referred to in this post are active managers, not passive managers such as index funds.