Transcript

Oh, my God, Mike. I'm so excited about the topic for today. I've been doing a ton of research. This is such a historic and great game about strategy. I can't believe that this is what you picked for our topic today.

Risk.

Yeah. It used to be called La Conquete du Monde before Parker brothers bought it in 1959.

I don't speak French. So I'm going to trust you on that.

This probably isn't the risk you wanted to talk about, right?

No.

[LAUGHS]

No.

OK. Well, I'm Stephanie Mathis with Michael Yhip for our MYWPs market cast. It's something I think that we all think about. I know that as an investor, it's something I have to hold at bay in terms of my worries, because I wonder about the risks we're taking with our financial futures. But then that's where you come in.

Hopefully, yes.

Now, so about risk, why did you want to talk about it?

I think I wanted to talk about it, because it's the conversation that is probably the most important, but the least understood, especially, when we start to work with new families, new clients.

And the things that people think about or the things people think are risky may not be risky. And the things that they don't think about, they may be missing the biggest risk. So I think having a real conversation about what risk really is is important.

Do you have an example of something about things they think might be risky but aren't or vice-versa?

Well, yeah. I've got a million. But I would say that this next sentence probably encapsulates what I think about risk, in general. It is not an easily definable word.

If you ask 10 different people what risk means, they'll give you 10 different answers. And if you ask the same person 10 different times what risk means, they may give 10 different answers.

Also, just what's happened experientially. That person that you were 10 years ago and what you might have tried then might not be the same person you are now.

I think that what you've experienced when you come into a financial relationship and advisory relationship with me is very important. So we always try to get behind what you've experienced, even before we start investing money. That's for sure.

So risk is driven a lot by emotion, a lot by experience, a lot about what they think they know or what they don't know. So it is a very difficult topic, in general.

So how do you work with that when you're looking at managing risk?

A lot of it is education through conversation. So meeting people where they're at in the start of the conversation, trying to understand what they think is risk. We always talk about planning as being the goal we should be focused on. Getting a plan together, putting that long-term wealth plan in place.

And the biggest risk to the clients we work with is the risk of them not meeting their own financial plans. And there's a lot of ways that that can happen. It could be that they don't save enough. It could be they don't earn enough. It could be that they don't sell a business for the value that they plan for.

It could be that their investments don't grow at a rate that they would like or they need. But, normally, it is not that. Normally, clients come to us with enough assets for us to take care of that part of the plan. There could be risks of them overspending. I see you smiling a bit.

Yeah. The listeners aren't supposed to know that.

So there are a lot of risks out there that we're trying to deal with. But the biggest risk is the risk of not meeting a financial plan.

It sounds like you're ranking risk. And so what's the next one?

Yes. I think I have in my mind, probably, three risks that I think are the most important for our relationship at a high level. The first one I mentioned, not meeting a financial plan.

The second one is permanent loss of capital. So the capital that you give us, is there a chance that that capital is significantly and permanently impaired? And what does that mean?

That's terrifying, by the way.

It sounds terrifying. And I think I put it out there, because as part of what we do, we can ensure that actually that doesn't happen. I'll get into that in a moment. And the third one, actually, is the risk that most clients would probably put at the top, which is market risk. And that's the risk that your-- or not just the risk. the fact that your investments will fluctuate in value. And what will that-- how will that make you feel? And will that do anything for your financial planning?

So, again, going back to not making your plan, we try to do everything we can to make sure you're going to meet your plan. And that's why we have conversations with clients about more than just investments.

That's why we focus on how the business is doing. It's why we focus on, are you OK with your budget? We set together. Do you need some help? Is there ways we can optimize it? Can we reduce tax? Those are all ways to meet your financial plan.

Risk of permanent loss of capital-- through our investment process, we don't think that that's a risk, because the way we design our portfolios, we have a chance of making sure that doesn't happen.

We do that through making sure investments are not over concentrated. We do that by trying to invest in companies that we know are solid. They're growing. They're important to the economy. And we think we're buying them at good prices. And we're not investing, where it's overvalued as an example or in a bubble.

You said bubble.

I did say bubble. Yes. Because I think we are always thinking about bubbles.

Maybe that's something we should talk about.

OK. Deal. We'll talk about bubbles in the next--

Episode.

--episode.

Perfect. It's funny because you're talking about risk. But I really feel like you're talking about trust.

Well, maybe you can tell me when you first met me. And we started having our conversations, did you trust me?

It's a scary thing, especially, when you first meet. And I think that there's different types of trust. There's institutional trust. There's certification trust. And then there's personal trust. I'm going to rank things the way you do.

So institutionally, are you with an organization that commands respect in this country? Do you have the certifications that are required to do what you're doing? But then what makes it personal is that connection. And so when you say, did I trust you? And it's like, yeah. I'd be hard pressed to empirically tell you why. But intuitively, I knew right away that, yes, I'm going to trust this person with the most important financial decisions of my life.

Well--

It doesn't mean I wouldn't challenge you on them.

If you have $10 million or $100 million, there's not a lot of firms in the world that you would trust with that amount of money. And, actually, RBC is one of those firms. We're a globally systemically important bank. We're the most important company in the country.

I think we have the implicit support of the Federal government. We have to. We've been through that financial crisis. And frankly, from a reputation point of view, and what we do for clients, like, this is an unbelievable organization.

And then there's experience. The experience that someone has whether they have a CFA, they can have a CFA and never have managed money. Or they can have a CFA and run a hedge fund. Those are two different experience levels.

And I think that in terms of trust, I do agree. You would grant us that initial amount of trust at the beginning of a relationship. But I think as the years go by, what I see in a trusting relationship is clients carry on with their lives. They start enjoying themselves.

They touch base a lot less, even though we're reaching out. They're saying, ultimately, we trust you, because we've seen enough. We've gone through enough. So I think that's where the relationships, ultimately, get to.

And then they just say, OK. Michael's team does know how to manage the risks overall.

And navigating those risky times, as they come up too and then seeing how you come out of it is an example, I think, of where that long-term relationship really plays in.

Yeah. Absolutely. Every few years, you get the opportunity, people get the opportunity to see, OK, there's a war in Russia in the Ukraine. What's happening with my portfolio? What's the team doing? How are we communicating?

There's COVID. Incredible. You had two weeks where the markets went down 30% and rebounded 2022, where bonds the quote, unquote, "safest investment" took some of the biggest losses along with everything else.

We've even, the last three four years, had so many different experiences for people to build that trust and see how we manage risk, generally.

So I would say, yes, you grant us that trust based on some of the things you talked about. But you earn that trust over time.

What's the takeaway that you want people to remember?

I think the takeaway is that having conversations about risk are very human discussions. They're not mathematical conversations. And the goal of an advisor-client relationship is to bring everything back to having people understand what are the most important risks to them, having them acknowledge that, and then working around that to make sure that we eliminate risks, where we can-- we are aware of risks, where we're aware of them. And everybody's comfortable with the plan.

OK. That's good.

Thank you.

Thank you.

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