Beverly Flaxington is a practice management consultant. She answers questions from advisors facing human resource issues. To submit yours, email us here.
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Dear Bev,
We are investment managers and believe in talking to our clients about the markets. I read a lot about how relationship building is the most important part of the business. But when it comes down to it, if we have a great relationship with clients but don’t make good investment decisions, we aren’t being fiduciaries. Clients hire us to invest – they can hire a therapist for the soft stuff. I would not expect you to agree given what you write about, but isn’t there a point to what I am saying?
Ron K.
Dear Ron,
Yes and no. I do agree with you completely on one point: Clients hire you to invest well on their behalf (or to create financial plans that they can use), and it is critical you possess the skill to do this. I would not want someone who is a licensed therapist, for example, to invest on my behalf — unless that person was also a financial planner. It’s a basic requirement for your profession that you understand financial matters and the markets. Some advisors are planning-focused, some are investment-focused and some do both. But ultimately, clients are coming because they want to entrust their financial well-being to a professional.
That said, money – for most of us – is the next most-intimate topic after our health and our children. And for some people, it may rate higher! It’s an emotional topic and a personal topic. I don’t see how you can learn about clients’ goals and help them navigate the financial issues in their lives without have a relationship with them. Many advisors who have backgrounds in psychology, therapy or social work tell me these views are invaluable, because they never know just what a client might bring up.
So I don’t believe financial management and relationship building are as inseparable as your note implies. I think one is the technical, required competence that is a must-have and the other is a people-focused orientation that is also a must-have.
Dear Bev,
The markets have been somewhat unpredictable. We are telling clients who are closing in on retirement to keep a significant percentage in cash. One client asked us what he was paying us for if we recommend “the bank or the mattress.” How do we respond to something like this? We believe it is the prudent approach, but we don’t want to be accused of not earning our fee.
Steven N.
Dear Steven,
The “What am I paying you for, exactly?” question comes up a lot. Given the dollar amount many clients pay each year, it’s natural for them to seek an understanding of what they are paying for. Please don’t take their inquiry as negative – although their approach of asking you leaves a bit to be desired!
It’s important to clarify they are paying you for your expertise – not just investing acumen. Yes, they could make a decision to hide money in the mattress, but would they know when the best time to do that would be? Would they know when to be in – or when to be out – of the equity markets? Would they know how much to allocate to cash versus other assets?
Their question should prompt you to do four things:
- Review your approach and confirm it does make sense and is defensible. You must be confident in the choices you are making
- Review your communication with clients. Don’t just instruct them to place holding sin cash without profiling your expertise and explaining why you are so smart with the decisions you are making for them.
- Respond to inquiries like this in a calm manner. Remind them that your role is to watch out for their financial well-being.
- Find out what is underneath the issue. Usually a focus on “fees are too high” can be symptomatic of something else they are unhappy about, and this is a final straw of a sort. Use this as a chance to deepen the relationship.
Beverly Flaxington co-founded The Collaborative, a consulting firm devoted to business building for the financial services industry in 1995; in 2008 she co-founded Advisors Trusted Advisor to offer dedicated practice management resources to advisors, planners and wealth managers. She is currently an adjunct professor at Suffolk University teaching undergraduate students Leadership & Social Responsibility. Beverly is a Certified Professional Behavioral Analyst (CPBA) and Certified Professional Values Analyst (CPVA).
She has spent over 25 years in the investment industry and has been featured in Selling Power Magazine and quoted in hundreds of media outlets, including the Wall Street Journal, MSNBC.com, Investment News and Solutions Magazine for the FPA. She speaks frequently at investment industry conferences and is a speaker for the CFA Institute.
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