Active Trader Magazine

Advanced Strategies

Know your muni bond customer

By Howard L. Simons

One of the many banes of modern life is customer surveys. Buy a car and the customer service folks will not leave you alone. Call your cable service and you will get some version of the how-did-we-do response. Everyone wants feedback — and yet too few seem to know what to do with it when they receive it. “Your call is very important to us …” Yes, I’m sure. So just answer it and everyone will walk away happy.

Registered representatives, account executives, financial consultants, investment advisors — deep and sincere apologies to those remaining off this duplicative list — operate under something called the “know your customer” rule. There are many ways to know your customer. We will ignore both the Biblical one and the one mandated by various money-laundering regulations. You are supposed to know what investments are suitable (“suitable” being something to be judged in hindsight by an arbitration panel if you are unlucky), and you are supposed to have an understanding of what marketing consultants call psychographics, a fancy term for “what makes your customer tick.”

Let’s focus on this psychographic aspect for the municipal bond market. Municipal bond investors traditionally are driven by an overwhelming desire for safety, for a modest level of current income, and above all for a deep and abiding desire to do anything with their money short of dropping it into the mouth of an active volcano rather than pay taxes on it. If you were to sit down with a pencil and sketchpad and draw a portrait of a municipal bond customer, you would no doubt create images of what was once country club society.

For the complete article, see the May 2012 issue of Active Trader magazine. Click here to subscribe.

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