Establishing Credibility and Building Trust with Clients of Any Type
Open Your Mouth and You Fall Out!
—Mary Rosenblum
James Cavanaugh, a new client prospect, and his wife, Serena, have arranged to meet you for a preliminary investment planning discussion at your office. At the age of 64, James is on the verge of retiring as CEO of one of the country’s most successful national hotel chains and has been referred to you for investment planning advice by Lester, his accountant of 20 years.
Cavanaugh’s golden parachute is worth about $75 million, based on the press reports you’ve read. You know, from your online research, that he’s well regarded in the hospitality sector as a corporate turnaround artist (he took his current hotel chain to the upper tier of U.S. hotel chains over just an eight-year period), but that he’s also regarded as a no-nonsense, somewhat quick-tempered guy who’s been known to chew out even senior corporate executives in front of rank and file employees.
Cavanaugh and his wife live in one of the priciest suburbs of Boston, and based on what Lester told you, they own two other homes, including one in Southern France and another in Alaska. Cavanaugh’s wife, Serena, is a bit of a question mark. The press hasn’t said much about her. She’s not active in the community, which is unusual. (This seems to contradict the old saw about there being a powerful and competent woman behind every successful man, a concept that still has resonance among some of your older clients, even though it’s quickly vanishing as younger generations assume positions of leadership responsibility in business.) Thus, in this case you had thought she’d be connected to a charitable cause or two in the community, perhaps serving on a board or acting as a spokesperson for a charity, where she could serve as a social ambassador for her husband.
Now, they’ve come to meet you for advice about retirement. You’re thinking that Cavanaugh may be feeling challenged, even insecure with his pending loss of role as a CEO. What’s he going to do next in his life? And what about Serena? After years of being supported by a well-compensated, often out-of-town spouse, she’s now facing the prospect of reimagining their lives together in retirement.
On the flip side of things, James and Serena are also wondering about you, their prospective advisor. You’re somebody their accountant recommended. Will you be gracious, interested, and engaging? Will you have personality and warmth? Or will you simply be a transparently ambitious advisor interested in landing a big fish as a client?
James certainly hopes it’s the former. He’s dealt with the latter all his business life. Investment bankers are the worst, he feels. During one hellacious period in his career he dealt with them 24 hours a day, seven days a week, while he was trying to sell a hotel chain to a foreign buyer.
A Challenging Client Prospect
James knows a lot about the hospitality industry and creating a welcoming environment. After all, he’s worked in the industry for nearly 45 years. As he prepares to meet you this day, he recalls a short vignette, a tiny, yet metaphorical little story involving, of all things, hangers from the days when he first took over the chain of hotels he’s now selling. He used to spend a lot of time visiting all the properties in his chain, sometimes anonymously as an Undercover Boss, and sometimes with the full knowledge of the staff of the hotel he was “observing.” In many hotels, he observed that the hangers in the closets were attached to the clothes rod. It used to drive him crazy because he felt it sent a message of hostility and mistrust to hotel guests. So, he had all the attached hangers replaced with high-quality and detachable wood hangers. And though the chain lost a number of hangers over the years, he never doubted the wisdom of his decision. It was his way of showing graciousness toward, and trust in, his hotel’s guests. That’s how focused James was on the most miniscule of customer service details!
So, now, he’s wondering if he’ll experience trust and graciousness when he and his wife meet you!
Cavanaugh and his wife arrive at your firm’s tony, 20th floor cherry-wood-paneled, offices. They’re greeted by Ashley, your receptionist, a polished and Prada-attired young woman who greets them by name. Cavanaugh suddenly thinks he might enjoy working with you, while his wife Serena is wondering what’s going on. Her concerns are quickly mollified, though, when the couple is escorted to your firm’s conference room with its tinted floor-to-ceiling windows exposing a breathtaking view of the city and harbor below. A silver tea service with English scones sits on the marble-topped conference table, which immediately gains a nod of approval from Serena.
You enter, right on schedule, to meet the Cavanaughs, dressed in a conservative blue suit, white shirt, red tie, and black shoes. You make immediate eye contact with Serena who seems to approve of your wardrobe, while Cavanaugh appears initially a little standoffish, thinking that you look too stereotypically the part of a stiff and waspy wealth advisor.
The three of you choose seats at the huge rectangular table, and immediately you begin to observe the human psychology and interpersonal dynamics on display in front of you. James and Serena sit three chairs apart from you at the table, which you find a bit odd. You make a mental note of it and then welcome them to the meeting and express appreciation that they’ve come. Serena beams as you speak, but James seems a bit uncomfortable, almost annoyed. You immediately realize that he doesn’t like mention of emotions, and his response begins to suggest he feels that you’re sucking up. You quickly change tactics to mirror his more analytical, no nonsense approach.
Breaking the Ice with the Prospect
“So, tell me about the hotel business and how you became so successful?”
Instantly, James seems more comfortable. You’ve given him the stage to talk at length about himself. It’s a role he likes. He’s in control, and launches into a lengthy verbal resume, highlighting his experiences in the hospitality industry over the last 40 years. As he talks, you look at Serena, who defers quietly while wearing a somewhat stoic face. She’s heard all of this before, often at cocktail parties or country club functions, but is pleased that you’ve tapped into this part of her husband and seem to “get him” faster than most people, who are often intimidated by his business title and physical bearing.
You continue to engage James around his business background and finally ask about the structure of his pay-out. Will he receive stock from the acquiring company or mostly cash? Will he have any continued involvement and earn performance pay-outs? Are there options involved, and if so, are they ISOs or non-quals?1
Initially satisfied with the responses you get, you turn to Serena to ask her about her life. You learn she stays at home, enjoys knitting and sewing, and also serves on the board of a local art museum in their community. She has always fully supported her husband. They married early and were childhood sweethearts. They have three grown children, all boys, who now live abroad and have successful careers of their own.
You then pivot to pursue a new line of inquiry with both of them.
“So, tell me, at this point in your lives, what are your personal goals and aspirations? You’ve built a significant nest egg. What’s in the future for the two of you? Are there new goals and dreams you want to pursue? Trusts for the grandchildren? New business opportunities? Additional property acquisitions? Travel perhaps, or involvement in philanthropic work?”
You probe further to learn a little about their families and childhoods. How did their early childhood experiences influence them and shape them into the adults they became? How did their early childhood and adolescent experiences with family, community, and schools inform their early adult years and their decision to get married and have a family?
James is getting fidgety. “This is all great, but what bearing does this have on our financial situation?” he asks you.
“Thanks for asking,” you reply.
Understanding the Client’s Personal Values
“In my experience, these types of questions get to the heart of my client’s values, which are critical for me to understand because they should serve as the basis for retirement and investment planning discussions. Over the years I’ve had clients share very personal, decades-long wishes and goals when it comes to their retirement plans, wills, and preservation and management of their financial estate. I’m always amazed at the financial goals people share with me—goals that have often been passed down to them from a previous generation.
“Sometimes clients have personal passions or convictions—for example, a love of the arts or strong convictions about the environment—which they want reflected in any legacy gifting plans they eventually make. They may be interested in certain causes related to a sibling’s childhood illness or a company or industry sector they want to target for future investment, using some of their financial assets. Other clients want to use their financial assets for the benefit of a dependent adult child or the community at large. There are literally hundreds of options a client might want to consider, depending on their personal values and financial situation.
“I’ve found that knowing the privately held thoughts of my clients can help me better serve their personal goals and interests. And, it can help them create a vision for what they want their wealth to accomplish.”
James and Serena are quiet for a moment. They look at each other for cues about how to respond. Neither of them has ever thought about wealth management, investments, and estate planning in this way. Your calm demeanor is intended to assure them that the process of values identification and clarification is an ongoing process, but one that can be most helpful as wealth/estate planning conversations first get started.
Explaining Your Firm’s Wealth Advisory Approach
You next go on to explain how your firm works. You talk about how you work with clients to build portfolios based on their ownership of individual companies, explaining that your firm’s close relationship with the managements of many leading companies helps you to select those firms that can be entrusted with client capital, and that have a solid track record of financial performance.
This meets with ready approval from Serena, but James challenges you.
“Why don’t you simply use mutual funds in building portfolios? That’s what I’ve seen time and time again in other firms. What makes you think you can really understand a company when there are thousands of analysts out there who spend their entire day following a single company in greater detail than you can?”
“Excellent questions,” you reply.
This tells you James is engaged, and you appreciate that he’s sparring a bit with you. “My colleagues and I have worked in the wealth advisory business for years. We have an average of 25 years’ experience as investment counselors, during which time we’ve seen trends come and go, often as fads.
“So, it is with the use of mutual funds. Many advisors believe they can pick and choose mutual funds with the same accuracy as they can individual company managements. But I haven’t found that to be the case. Too often I’ve seen mutual fund managers become filters between investors and the companies they own. Yes, there are a lot of good mutual fund managers out there, but there are far more bad fund managers. No mutual fund manager can outperform their industry index or market index over a long period of time. But, they are paid to do just that!
“We prefer to avoid mutual fund fees and simply invest directly in the same quality of companies that the fund manager would buy. We can call up the company any day and ask our questions directly of the company’s management. We can never have such access with a fund manager.”
James nods agreement, and quickly interjects that he has to know the company or companies where he’s investing his money. And, if he and his wife work with you, he’ll have some specific ideas of where investment capital should be put.
“That’s great,” you say. “I welcome your input. I have some clients who put aside their ‘hot’ money so they can invest a small part of their portfolio in their ideas.”
James feels you have addressed him face on, which he likes.
You continue. “This mutual fund issue goes to another problem we have with using funds in your accounts. It’s the CYA issue. As a firm, we feel that too many investment advisors who are charged with managing individual client money choose to use mutual funds in client accounts because it allows them to hire and fire mutual fund managers if there are performance issues. If poor performance develops, the underperformers can be identified and the advisor exits. The client is told of the poor performance and the action taken, but it takes much longer, perhaps years, before the advisor’s investment process and his ability to pick mutual funds is ever questioned.”
You then explain that your firm feels it has a fiduciary duty to clients.
“You are asking us to invest your capital. Therefore, it’s our responsibility to put your interests ahead of ours and to take actions that treat you accordingly. We would feel compromised, in a fiduciary sense, if we bought mutual funds, because we would not have control over what happens to your money; it would be handled by an intermediary, a mutual fund manager. It’s hard enough to honor fiduciary duties when investing in individual companies. It’s nearly impossible, in our opinion, when we invest in mutual funds.”
You go on to explain that mutual funds have yet another downside for large investors. Many advisors, you note, use mutual funds to develop intricate asset allocation schemes in pursuit of what is called the “efficient frontier.” This involves pursuing an ever more efficient group of asset classes and representative mutual funds to get the best combination of fund managers who, together, due to low correlation coefficients between funds over time, are supposed to provide the client with better performance than can be achieved by owning simple combinations of stock indexes like the S&P 500 and low-risk groups of Treasury bills.
“We’ve seen plots of how this is supposed to work, based on historical analyses, and it looks impressive, but it is all based on history,” you warn. “These asset classes all maintain their low correlation with each other in backward-looking tests, and the mathematics hold true. But applying it going forward often doesn’t work. That’s because when it comes to the performance of mutual funds (as with all investments) history never repeats itself.”
James likes what he hears. “Go back and tell me more about the fiduciary issue,” he asks.
A fiduciary duty, you explain, is the highest level of responsibility that governs an investment advisor’s actions on behalf of his or her clients. “When we’re hired by a client, we work as that person’s agent and must always make decisions in the client’s best interest. This includes a duty of loyalty, but also a duty of care. The client’s interests are, in fact, held above the interest of the advisor. Obviously, all conflicts of interest are to be avoided.”
James quickly agrees that he sees how important an advisor’s fiduciary duty is to building a sense of trust between the advisor and a prospective client.
Explaining Your Firm’s Wealth Advisory Mission and Vision
“So, tell me more about how you go about choosing companies to invest in. What are the criteria?” James asks.
“Great question!,” you respond. “Our vision here focuses on buying good quality companies for our clients whose financials and management are strong and whose growth prospects are promising. The company’s stock must be reasonably valued relative to these growth prospects. We prefer pursuing this objective to getting involved in esoteric searches for mutual funds, lying on some mythical efficient frontier which might or might not materialize in a certain timeframe.”
“Hmmmm …” you hear James say to himself.
You continue. “And here’s one more thing to consider. How many people do you know who talk with pride or affection about owning some bond fund? Or even some stock fund? People don’t!
“But, they will tell you if they own a particular stock, especially if it has done well. A client’s pride of association can become even clearer if he or she owns a small cap or mid-cap name, especially if it isn’t a household name. If its performance has been good, it becomes great cocktail party chit-chat. We wouldn’t say this is where the best investment work is done. Our point is that investing brings with it a pride of association with really good companies that rarely exists when someone buys a mutual fund index.”
“Investing can be a very emotional experience,” you tell James and Serena.
As the advisor, you stop there, for a moment, to give your prospective clients a chance to react to what you’re saying. They clearly like what they’re hearing.
You then shift gears to talk about how individuals often approach decisions about investments in different ways. In the case of a couple, you note that sometimes one party or the other (often the major breadwinner) tends to be the driver of the conversation and tries to come to closure about investment decisions relatively fast. But in other cases, a couple may go back and forth and discuss possibilities and investment options almost endlessly, without coming to firm decisions. Still others have conversations that go all over the place (“kitchen sink conversations,” you call them) in which one party or the other puts a lot on the table for the couple to discuss, seemingly in a random way without moving the conversations to a decision-making point.
You assure James and Serena that there are many ways couples make decisions about their investments. There’s no one “right” way, and people may even change roles as a conversation proceeds—sometimes driving a conversation, sometimes opposing, sometimes endorsing what their partner has said, and sometimes appearing to defer or “bystand” from taking a firm position of their own.
Again, you assure the couple that such interpersonal and conversational dynamics are normal, and speak to the unique human natures of the individuals having the discussion.
James and Serena now appear to have said everything they wanted to say to you and seem to be soaking in all that you have shared with them. They both seem impressed with your style of engagement and the approach that the firm takes to building portfolios for clients. You’ve answered their questions and addressed their concerns. James realizes that the ultimate destination in using mutual funds in client portfolios is the broad use of index funds. This was an option he never found attractive because he couldn’t fully control what he owned. Instead, someone who constructed the index did.
He senses that you have a depth and maturity with investing that he’s not seen in other advisors he’s met. He also realizes that you are advocating in favor of an anachronistic approach to investment planning that involves active investing. James like this and feels it shows courage, rectitude, and self-confidence on your part.
James now asks for a few minutes so that he and Serena can talk. You’re a little surprised that they only want a few minutes because you’ve thrown a lot at them today, including a new approach to investing with which they weren’t previously familiar. In the past, you’ve found that prospects often require a week or more to fully digest what you say to them during prospect meetings. Then again, James, in calling for a little privacy with his wife, is used to making important decisions with limited data. So, you leave the room.
James and Serena are left alone with one another.
What follows over the next 20 minutes is a pattern of conversation and decision-making on their parts that has been their norm since high school. She expresses her feelings, becoming emotional about all that you brought up about values, family culture and traditions, legacy planning, “doing the right thing” for the children, planning for the future, and so forth. But, she feels overwhelmed with information and doesn’t want to make any hasty decisions about the firm with whom they currently invest their money.
“Shouldn’t we talk to other firms? Get even more information before we decide?” she asks him.
James gets impatient with her. He listened intently to you, took your gauge, and sensed that you’d spent considerable time and care developing your comprehensive approach to the wealth management process. He’s impressed, more than he thought he’d be. You conveyed intellectual heft, as well as solid business experience and perspective. He likes the fact that you and your firm “buck the crowd” in your approach to investment counseling and he respects the backbone that that requires.
As he shares this with Serena, he remarks that she seemed to like you, as an advisor, as well. Serena acknowledges this, saying that she liked being asked about her childhood, her family, her personal values, and how she met James. “I was tempted to tell him our entire story,” she tells her husband, “But then realized that you didn’t want to hear it yet again!”
James and Serena grow quiet. They’ve both played specific roles in the conversation they’ve just had with one another. It is a long-standing pattern of interaction. James has always been the practical one of the two of them, and Serena has typically deferred to him on matters of business and finance. For his part, he has usually deferred to her on other topics, such as the children, family, and home.
In this case, both parties feel they’ve gotten something important from you: a sense that you understand them. And so they decide: they will retain you as their advisor.
Looking Back: Analyzing an Advisor-Prospect Conversation
While the above client scenario is a case study, it’s actually a synthesis of many such initial meetings that I’ve held with prospects and clients over the years. I share it with you because it’s my firm belief that the way we set the stage initially with clients, and the way they respond to us, determines the outcomes (and success) of such meetings. Are professionalism and credibility established? Is chemistry forged? Is rapport built? Most important, are the beginnings of trust created even in an initial meeting with a client or prospect? For us, as wealth advisors, keeping these goals in mind, and attending to the interpersonal dynamics required to make them a reality, is a full-time job.
That’s why, in the remainder of this chapter, I will talk about what it takes to build strong, healthy, and highly functional relationships with our clients regardless of their hero type. As you saw in the case study just presented, the advisor managed to build a connection with James and Serena in the course of just one get-acquainted meeting. He asked them questions about their personal and family values, about their investment and retirement goals, and then explained how his firm typically works with clients to invest their capital for them.
He went on to talk in depth about his firm’s approach to “old-fashioned” investing, and why he and his colleagues put such a high premium on providing fiduciary care to all their clients. This served to engage James, and to comfort Serena, the result being that by the end of the meeting they decided to work with the advisor.
While obviously a case study for illustrative purposes, the vignette offered clear direction as to specific steps all of us, as advisors, need to take to connect with clients, build rapport, establish credibility, and forge a sense of trust.
So, what are the key building blocks that advisors need to be mindful of, in building strong working relationships with clients? (See Figure 9.1.)
■ ESTABLISH CREDIBILITY
As a top priority, an advisor needs to demonstrate his or her professional credentials to the prospect or client as a relationship is just being formed. Professional training, certifications, and other evidence of professional expertise are paramount, as is the ability to connect personally and easily with the clients with whom you work—because clients don’t just hire credentials, they hire people.
So what, in fact, do you have to offer your clients as an advisor? To answer that question, I suggest you do an inventory of your professional background, skills, and experience. What do you consider to be your greatest strengths and assets as an advisor? What’s unique?
How Are You Unique as an Advisor?
In his book, The Consultant’s Calling, Bringing Who You Are to What You Do, Geoffrey Bellman offers advice and wisdom that wealth advisors are wise to embrace.2 He asks the question: Why do clients [in any profession] actually hire us? And then he offers a list of reasons. They hire us because of our:
|
experience |
friendship |
support |
|
eyes |
vision |
contacts |
|
age |
reputation |
authenticity |
|
wisdom |
information |
perspective |
|
accomplishment |
approval |
objectivity |
|
values |
skills |
insight |
|
products |
personality |
compassion |
|
expertise |
guts |
credibility |
Authors Steve Yearout, Gerry Miles, and Rick Koonce have added still more “consultant qualities” to this list, including stories, humor, concern, confidentiality, empathy, and creativity, among others.3 Understanding what you have to offer your clients as an advisor will do a great deal to fortify your professional self-confidence. Moreover, it’s a great way to distinguish yourself from your professional colleagues, and to build a positive and professional brand.
■ “CONTRACT” WITH YOUR CLIENT
In my view, the single most important task for any advisor to accomplish in his or her initial meetings with a new client or prospect is to have deep and wide-ranging discussion about the client’s values, family history, life philosophy, and long-term life goals. In many cases, the conversations that advisors have with clients may be unlike any the client or prospect has had before. Indeed, advisors often discover that clients lack an even basic vocabulary for talking about such topics, until encouraged to do so as part of a holistic approach to wealth management discussions. In the case study, it’s revealed that James and Serena were a bit surprised, at times, by the conversational tack the advisor took with them, but ultimately they were pleased that he was attentive to them and strived to understand their wishes.
Frame Expectations
Early meetings with prospects or new clients also need to focus on answering clients’ initial questions, allaying potential concerns, framing expectations, and establishing good chemistry and rapport. Here I’m talking about “contracting” not in a legalistic sense, but in the sense of aligning yourself with your client, sharing with them what your firm’s philosophy about investing is, and explaining why you embrace this philosophy as well.
Sometimes, initial contracting can be as basic as establishing good chemistry and rapport with a client in the early stages of a working relationship. On the other hand, it can sometimes be quite formal and structured, if you are working with a wealthy couple or family where other professionals, including lawyers, accountants, estate planners, and others are parties or stakeholders in the discussions about investing and wealth management that you have with your client(s).
In any case, it’s critical to substantive contracting at the beginning of a client-advisor relationship to firmly anchor the relationship and create strong alignment between the advisor and the client. Doing this in low-stakes circumstances is far preferable to trying to build a relationship of trust and understanding when the markets are roiling or the client’s portfolio experiences a market correction.
Hold Regular Reviews
A healthy client-advisor relationship necessarily entails regular review of financial, investment, and wealth management goals with the client, be it an individual, couple, or family. This means it’s critical that you take the opportunity, at least on an annual basis, to query and explore with your clients their wealth management goals and objectives. In my experience, the Four-Player model can be an invaluable tool here. There will be times, for example, when it will be important for you to drive the conversation (as a Mover); times when it will be important to be a listener (act as a Follower); times when it will be important to simply let the client express his or her views, opinions, and concerns and reflect them back (be a Bystander); and times when it will be important to question, challenge, or invite further conversation by being an Opposer in dialogue with your client. The Four-Player model is a powerful client engagement tool. If you master its nuances and intricacies conscientiously, you will find it to be a powerful mechanism for navigating the conversational “waters” with clients both in low-stakes and high-stakes situations. It will help you to know when to be assertive and challenging, when to be deferential and/or supportive, when to be inquiring, and when to move conversations to closure.
Figure 9.1 Building Blocks of Successful Advisor-Client Relationships.
■ EMPHASIZE COMMITMENT AND ACCOUNTABILITY
Clearly, as an advisor begins to work with a client, it’s vital that he or she communicate his or her interest in and commitment to working with the client. This goes beyond paying mere lip service to professional guidelines; it should include a strong personal statement about fiduciary responsibility. In the case study, the advisor went out of his way to speak to the fiduciary responsibility that both he and his firm had when it came to serving the needs of his clients, in fact, putting the needs and interests of the clients above all else. If you are not intimately acquainted with the fiduciary responsibilities that are entailed with whatever professional credentials or certifications you hold, I strongly encourage you to familiarize yourself with them.
Be Present to the Client
Professional accountability goes hand in hand with personal commitment to clients. To me, accountability is about adopting an attitude of stewardship and servanthood in the work I do on behalf of clients. You know from my background and from my self-identification as a Protector personality (see Chapter One) that I believe it is critically important that I be accountable to clients and put their interests foremost. This goes beyond fiduciary responsibility to include stewardship, which I discuss, in depth, in Chapter Ten.
■ BE CURIOUS
As you know, I became a wealth advisor because of my keen interests and curiosity, both about the financial markets and about the motivations of people who invest in the markets. In my opinion, curiosity is absolutely essential to the work that we do as investment advisors. It’s incumbent on us therefore that as part of serving our clients, we get to know them on as intimate a level as we can.
Part of being curious about our clients entails using what leadership coaches sometimes call powerful questions, questions that are open-ended and that invite a client or prospect to share their thoughts, ideas, and feelings with you in depth. As the case study highlighted, the advisor asked James and Serena questions about themselves and about their wealth that they were not accustomed to. Elsewhere in this book, I’ve described the eight key questions I like to ask clients. This process is sometimes referred to as appreciative inquiry (another term I borrow from the coaching world) as it entails a commitment to fully understanding not only the client’s current thinking but also helping the client to think in strategic, long-term ways about the management of his or her wealth.
Appreciative Inquiry Helps the Client to Articulate His or Her Goals
In his book Wealth in Families, Charles Collier, former senior philanthropic adviser at Harvard University, points out that there are many kinds of wealth that people possess, including financial, social, intellectual, and human.4 “There is more to … wealth than the financial dimension. Human capital refers to who individual family members are, and what they are called to do; intellectual capital refers to how family members learn and govern themselves; social capital denotes how family members engage with society at large, and financial capital stands for the property of the family.” Thus, people of financial means are well served if they are asked to articulate the various kinds of “wealth” that they possess and to develop a vision around how such wealth is to be used. Collier poses a number of key questions that advisors need to ask wealthy families who are their clients. Similar questions can and should be directed to clients who are individuals and couples as well. Here are some examples I’ve come up with:
In my view, you will be doing your clients and prospects a big favor if you ask powerful questions and have expansive conversations with them as you go about helping them develop long-term investment and wealth management plans. Why? Because you will be helping them to fully actualize their lives and realize the full potential of their wealth to better themselves as well as others. Collier notes that a person’s approach to wealth is a statement of what they stand for. It becomes a statement of who they are.
One of the most difficult challenges for any advisor is to build a relationship of trust with a client. Building client trust entails both basic and complex steps. Being ethical, keeping client information private; assuring confidentiality; and providing clients with objective advice, information, and counsel are clearly all critical. It sounds a bit trite, but be a person of good character. As the late John Wooden, former basketball player and UCLA basketball coach put it: “Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are.” Also, acknowledging failure and mistakes openly and forthrightly, when they occur, is essential to maintain credibility and humility. Indeed, I encourage you to exercise humility in service to your clients. It is a great defense against professional narcissism. Dealing with individuals of great social stature and wealth can be a heady experience, especially for younger advisers, so it’s important to keep your feet on the ground and never take yourself too seriously.
Emphasize Integrity
What else is critical to the trust building process? Bryan Olson, CFA, and Mark Riepe, CFA, are authors of an article called “Using Behavioral Finance to Improve the Adviser-Client Relationship.”5 They cite 21 actions advisors should take to build credibility and trust with clients. Some are basic and obvious, such as “Establish and communicate an understandable corporate investment philosophy and a disciplined process” to clients. Also, “Avoid making overconfident statements to clients.” Other recommendations are more subtle. “Be cautious about risk-tolerance assessments performed during or near periods of extreme market movements,” they caution.
Olsen and Riepe know what they’re talking about. How many of us, in the depths of the 2008 financial crisis, wanted to run away from stocks altogether? Certainly many clients were willing to throw in the towel. It was an exhausting time for clients and advisors alike. If you had asked many clients, who started with advisors at that time, about their risk tolerance, you would have heard many of them express a clear preference for bonds or hedge funds. But had you then gone back to those same clients a year later, they probably would have indicated a significantly stronger risk tolerance for stocks.
Olson and Riepe also believe it’s important to learn if your client had previous relationships with advisors that were not satisfactory. “Past experiences, good and bad, may influence the client’s perception of an adviser’s intention or actions,” they write. Prospective clients often seek out new advisors because of past poor relationships. So, it’s critical for the new advisor to understand what went wrong. He or she can then work sensitively with that client to “set [clear] expectations, communicate the asset management process the advisor will follow, and reduce the odds of disappointment down the road.”6
If you are meeting with someone who has worked with an advisor before, and perhaps did not have a pleasant experience, be ready. Gently probe the client as to their needs, hopes, goals, and desires in working with you. Sometimes, the most important needs and desires lie buried in the client. So, you may need to do some gentle digging to expose them to view.
Educate the Client on the Perspective of Time
Lastly, Olsen and Riepe encourage advisors to “adopt broad frames when discussing performance” with clients. There’s tremendous wisdom in this recommendation. From your own experience in holding portfolio performance meetings with clients, you know that they sometimes focus too much attention on the few individual stocks in their portfolio that have underperformed, instead of taking a big picture view of the portfolio’s performance as a whole. (It’s analogous to what happens in parent-teacher meetings when parents focus on their child’s one bad grade, instead of looking at the larger picture of the child’s classroom performance!)
In these instances, advisors need to steer conversation toward discussion of the client’s portfolio as a whole. At the same time, the portfolio’s performance needs to be set in the context of the economy’s current health, which is always influenced by factors such as central bank policies, international financial uncertainty, volatility in emerging markets, changing exchange rates, political developments (e.g., coups, terrorism), and other factors.7
Still other dynamics that contribute to the building of high levels of client trust are a number of “high touch” factors including the ability of the advisor to personally connect with his or her clients, to display empathy and understanding, and to help the client believe he or she is being listened to in an authentic fashion. The Family Office Exchange (FOX) based in Chicago, which helps high net worth families, representatives of family offices, and wealth advisors discharge their respective wealth management responsibilities, has just published research in this important area. It found that while product offerings are quite similar from one firm to the next, the realm of client experience remains a frontier yet to be fully leveraged with clients. Still, many firms (and their advisors) are endeavoring today to offer their clients “white glove” client experiences similar to those that consumers have grown to expect with Apple and Nordstrom.8
For more information on this, you may want to check out the FOX website at www.familyoffice.com.
■ ENCOURAGE COLLABORATION
Ideally, as advisors, we want our relationships with clients to be “co-equal.” In other words, we’re not simply there to be subject matter experts (SMEs) but also as partners with our clients. Obviously, the degree to which clients will want to partner with us in helping to design portfolios and create investment plans will vary. But, it’s my firm view that this process and the relationship itself should be as much of an interactive and collaborative partnership as possible. I have had some clients who want nothing more than an annual meeting where the general investment strategy is reaffirmed. In the case study though, James indicated that were he and Serena to work with the advisor, he would want to offer input into investment choices and decision-making, and the advisor wisely welcomed this as evidence of desired active engagement by the client in the investment planning process.
■ PROVIDE ADVICE AND COUNSEL
Up to now, I’ve spoken of the advisor-client relationship almost as a co-equal relationship of peers. And to some extent, that’s exactly what a well-designed advisor-client relationship is and should be: both parties co-equal partners to discussion of the client’s wealth management and investment goals. Yet clearly, given the specialized expertise and product knowledge of wealth advisors and financial consultants, the advisor-client relationship necessarily requires that the advisor also play a consultative role with his or her clients. Advisors should work with the client to develop and articulate wealth management goals and objectives, performance expectations, and metrics by which portfolio performance will be developed. The advisor should be ready with worksheets for developing investment plans and portfolio options. He or she can and should also offer the resources of his or her firm on behalf of the client, for example, by providing client education materials, ancillary services, and online resources to clients, as requested and appropriate.
■ ARTICULATE GOALS AND STRATEGY
Based on the discussions you have with clients, and the trust and rapport you establish, the time eventually comes when it’s important to discuss and commit to financial goals. As part of laying the foundation for a client’s investment and wealth management plans, I like to invite the client, at a certain point in our conversations to provide me with a set of their financial goals—at a high level. These goals are always based on the conversations that the two of us have already had, but I think it’s important that the client use their own language to formulate goals relative to their financial objectives. These goals then become part of the investment policy statement that is developed for each client and each relationship or account. Developing investment policy statements is a highly collaborative process that should be periodically revisited on a mutually agreed-to timetable.
■ FORGE A VISION OF THE FUTURE
As you and your client develop investment and estate planning goals, and as you hold discussions with your clients about their values, family history, and priorities, a vision of the future for the client’s investment plans begins to emerge. This purpose is usually derived after significant conversations over a period of months and has tremendous implications for the client and you in helping the two of you stay on course with wealth management goals and objectives over the long term. But the visioning process is not a one-time event. In my experience, a client’s vision for their wealth typically evolves over time, as needs change or a family ages. Thus, advisors and clients are likely to have periodic re-visioning discussions over a period of years. During these meetings it’s important to listen carefully to your clients, on many levels. Not just for the words they share with you, but also the tone of voice, affect, and body language they use in expressing themselves to you.
I believe that helping clients develop a personal vision for their wealth is critical to framing a client’s wealth management goals and priorities and putting them into a meaningful context for both the wealth holder and those close to them, including spouses, siblings, children, grandchildren, and others to understand. After all, discussion of these topics will help family members fully understand how assets are managed and how estate plans are developed. As an advisor, you have a tremendous opportunity to act as a critical sounding board and conversation partner with clients who, in many cases, will need help in articulating their values about their wealth and their priorities for its use. As Collier notes, “Substantial financial wealth, whether created or inherited, has the capacity to transform the wealth holder. Many wealthy individuals rethink the meaning of their money, indeed their lives, in light of the freedom and empowerment their money provides them.”9
■ MAINTAIN APPROPRIATE PROFESSIONAL BOUNDARIES
Finally, I want to say just a word about the importance of establishing and maintaining appropriate professional boundaries with clients at all times. I can’t emphasize strongly enough the importance of you doing this, both for the sake of your career and the welfare of your clients.
As advisors, we often are privy to a great deal of personal information, family secrets, financial records, and other intimate information about people’s lives. We must deal with grieving families and with spouses who have lost husbands, wives, partners, or significant others. In such situations, we are sometimes put on pedestals by individuals who are emotionally fragile, who over-identify with us, or who are looking to transfer (unconsciously) their love and grief to people beyond their immediate family.
The relationships we have with our clients typically are not symmetrical, which simply adds to the challenge. While we are there to provide financial assistance to people who need it, our clients often are wrestling with a variety of emotional, psychological, and even sexual/intimacy needs that come to the surface in moments of emotional vulnerability and life transition. Sometimes clients become overly dependent on us emotionally. Sometimes too, advisors get too close to their clients.
Always Take the Temperature of the Room
As a Protector who wants to serve as a steward to others, my own impulse to take care of others can be very strong. This is how I am wired. At times, I have to keep my own emotions for a client in check, notably when they present themselves to me as either Survivors or Protectors.10 Over the course of my career, there have been times when I’ve worked with female clients who seem to welcome the sense of protection that I intuitively offer in my work. These are potentially dangerous situations which, as a Protector, I want to caution my fellow advisors about.
I have never succumbed to the temptations of these situations. First, I can’t imagine a more damaging way to limit or end a career than to become romantically involved with a client. If I’m hired to provide advice to a client, how can I possibly do my job objectively if I’m romantically involved with that person? Second, to become romantically involved with a client would obviously damage my marriage and violate the promises I have made to my wife. I would never want to risk destroying the generous gift of love and faith she has placed in me. By honoring her, I validate what is most important in my life.
When Things Get Awkward
Sometimes, no matter how unwanted it is, an advisor can become the object of unwanted attention or affection from a client, as occurred on one occasion when a client of mine (a wealthy widow who’d recently lost her husband of 50 years) expected that a sexual liaison would be part of our working relationship. She was in her late 70s at the time. I was a young man, just getting started in my career as an advisor. Her actions toward me (including the writing of an erotic “love” letter) made me wince and forced me to share details of the incident with my colleagues in my firm, and to seek their guidance in how best to deal with it. When I shared my story with my colleagues, we jointly decided that thereafter I would always have one other person with me when meeting with and advising this client. Over time, I ultimately shifted much of my work to this colleague, and to others.
My advice to you is this: When you are counseling others about very personal and private topics, such as wealth and estate planning, and when either the client or counselor is emotionally vulnerable or even immature in judgement, it can be a recipe for catastrophe. Not only does it bring up issues of ethics, but it potentially can create a manipulative and dangerous situation for both parties involved. I offer counsel here especially to younger wealth advisors who may just be starting out in their careers. As advisors, you are likely to learn many intimate details of your clients’ lives and be put in positions in which confidences must be kept and privacy respected. It can be a very heady experience, as a young advisor, to be a counselor to wealthy and sometimes famous people who are accustomed to getting their way and who (sometimes) are master manipulators that have learned to exert power and control over others.
If you find yourself in situations where you are uncomfortable, or are concerned that you could be violating ethical or professional standards or crossing interpersonal boundaries, err on the side of caution. Seek out a senior colleague in your firm for advice and counsel. Don’t blame yourself or believe that you brought the situation on. And don’t try to ignore what’s going on. Instead, take note of what is happening and act with prudence and maturity.
Chapter Conclusions
This chapter has discussed critical components in establishing credibility and building trust with clients. Clearly, the relationship building process with clients is critical, if we are to understand their needs and help them achieve their investment and wealth management objectives. As with investing itself, the dynamics associated with effective client relationship building and management are both emotional and interpersonal in nature. And yet, your full and intentional engagement in this process can optimize the client-advisor relationship and assure the development of investment plans and estate arrangements that are fully aligned with the client’s wishes, goals, and objectives for their wealth.