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Sharing a client relationship with another advisor is as appealing as sharing your toothbrush. But relationship sharing is what can stop clients from terminated you and keep the ACAT forms away.
The ACAT is just a mouse click away
Wealth management has historically been a “hunt and kill” sport. Advisors operated in silos and you never told other advisors who your clients were.
You met with a prospect and determined if they were qualified based upon assets, income, etc. The onboarding process entailed a simple risk-tolerance questionnaire (RTQ), but it was full of situationally-derived questions, and many times client didn’t know what they really meant.
Client didn’t invest a great deal of time in the RTQ because it wasn’t made clear to them that this would be the sole basis for the determination of risk and any litigation they would pursue against you.
How well did you really know your client?
Maybe you got lucky. You managed the relationship and usually the client would stay with you unless you lost them a ton of money. Or maybe they hung on despite this if they liked you as a person.
That may have been enough.
That was before people could get ETFs for three basis points, watch “personal finance gurus” on YouTube who will give them advice for free (yes, and those people have no practical experience or credentials), and set up an account online in less than 20 minutes. There are services like GuideVine, WiserAdviser, and the Palladin Registry that instantly furnish a list of advisors in their local area.
It’s become way too easy for clients to push the ACAT button at the slightest sense of any friction.
Advisor-client mismatch is so painful
Here are some examples I’ve heard advisors tell me over and over again:
- My client was upset over the performance of her account. I told her that we had only made her money and the account is in the positive. But she just insisted that we were wrong, we lost her money and said it wasn’t worth the fees she paid.
- Clients positioned in lower risk equities with lower returns, but wanted returns of riskier equities and blamed me for investment selection.
- When I called a cold lead that I got from a lead-generation service, the person was rude. I couldn’t get her to tell me anything and the way she was questioning me about my credentials, I felt like I was on the witness stand.
- I can’t make risk “real” to some clients; they only care about returns.
- They came to me because they’re unhappy with their accounts at [large brokerage firm]. I told them I could get them better performance. They agreed to give me a small sum to start with, but it was below the minimum so I asked for more. That was last week and they haven’t called me back.
Do these sound like relationships where both parties are comfortable?
Look, we’ve all had these painful conversations, replete with tension, strain, shrill, awkward, fear, anger, annoyance. Raise your hand if you feel these kinds of frictions are beneficial for building continuity in your practice.
How do you get rid of them?
The move towards behavioral awareness
Frictions resulted from advisors not understanding how their clients are going to behave under pressure. In order to do that, you’d need the time and tools to deeply understand them psychologically using a legit behavioral analysis, and you’d need to base the relationship on this from the jump.
It has to come to you as data, testing, as a scored and rigorous assessment designed by psychologists, not a heuristic “feeling” you get about someone during the steak dinner.
In the new age, advisors who neglect to do this will be competing with others who “get it” about the client’s natural tendencies and behaviors. And those advisors will have a huge advantage in how they play the game.
I had two great podcasts with behavior science leaders Akshay Singh of Advisory Match and Hugh Massie of DNA Behavior talking about using questionnaires to understand the client psychologically before you onboard.
It can be scary, though.
What if your client fills out the questionnaire and you find out that you and she/he have totally opposite personality types? Do you stubbornly press on, toss the questionnaire aside, and send them the welcome packet anyways? Or do you bravely pause to address these inherent differences even if you have to sacrifice something?
Serving the client on their own psychological terms
Let’s say you are an extremely goal-oriented advisor who communicates based upon logic and facts. Your prospect’s questionnaire shows them to be softer, wanting to be related to and connect emotionally, and communicated with in a less direct fashion.
If ignored, it won’t be long until tensions arise and out comes the ACAT. But if you choose not to ignore it, here are your options.
#1: Be (kind of) stubborn
Pursue the relationship anyways with the understanding that you will have to modify your communication style. At times either you or the client will not feel like you can communicate naturally. You are going to have to put a great deal of attention into planning out what you say to this person before you say it. Even so, conversations may be stilted at times. You pocket 100% of the fees here, but it may not be forever.
#2: Be humble and sacrifice
Partner with an advisor whose personality lines up better with the client. You and your partner map out a plan for how each of you will be involved with this client. Make sure you get clarity here in writing or it can lead to problems.
This means, by the way, that both you and this advisor have to sit down and take the same personality test that your clients take. You can’t just make assumptions because they’ll never be objective. If you’re a small firm with only one or two advisors, you may have to seek to enlist other advisors outside of your firm. You share fees but the relationship may last through market cycles.
Consider #1 and #2. Which option do you think works better in the long term?
Sara’s upshot
Although it’s repulsive to think about giving away business to the competition, understand that the business is going that way anyways if you allow frictions and mismatch to persist.
The new service model involves blending of personality types when needed. It is based upon understanding of who your client is psychologically and how they are going to behave under pressure.
A personality mismatch requires a willingness to be humble, to pause at the jump, share fees and information and blend your approach. Doing this you will serve the client on their own emotional terms and both you and your client will be better off in the long run.
To stay with me as I explore this topic further, please subscribe to my podcast here.
Sara Grillo, CFA, is a top financial writer with a focus on marketing and branding for investment management, financial planning, and RIA firms. Prior to launching her own firm, she was a financial advisor and worked at Lehman Brothers. Sara graduated from Harvard with a degree in English literature and has an MBA from NYU Stern in quantitative finance.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.