(Investors) Clients may hire you as their financial advisor, but that doesn't mean they rely solely on your counsel. In many cases, they tap multiple sources for financial insight. And some of it falls into the realm of bad financial tips.
Family and friends may supply clients with a steady stream of well-intentioned but wrongheaded financial tips about money matters. When that happens, it can be tough to remain diplomatic in evaluating what you hear.
You might face an uphill battle in trying to convince a client that the advice they've received from those closest to them is faulty. Clients may instinctively defend their allies and treat your comments with skepticism.
If clients consistently favor misguided advice from friends and relatives over your recommendations, you may want to reassess the relationship.
Retaining a client who repeatedly disregards your input leaves you with extra work and ongoing vexation.
"It comes down to whether you really want to keep that client," said Mark Hogan, a certified financial planner in San Antonio, Texas.
When Hogan confers with clients who get bad advice from those around them, he tries to educate them about the importance of devising a comprehensive financial plan and sticking to it.
"I'll say to the client, 'To be successful in investing, you need one plan or one direction to follow, not lots of plans,'" he said. "Everyone has an opinion," so he urges clients to share any ideas that they gather through their social circle.
Running everything through the advisor ensures a coordinated strategy. With too many players chiming in, clients can wind up with a mishmash of investment products that undermine their overall goals.
Financial Tips Go In Separate Accounts
When Hogan suggests that clients adhere to a single plan — and not divert from it when tempted by alluring but misguided advice from friends and relatives — they almost always agree. They may defer to their advisor because they're paying for such expertise, while friends' advice is free.
In one case, however, Hogan hit a roadblock. A client replied, "My brother-in-law is pretty smart," and decided to prioritize that advice over Hogan's. Eventually, the client moved on.
For high-net-worth clients, Hogan may create a mechanism for them to act on the advice on their family and friends. For example, he'll designate a separate account so that the client can control those funds without Hogan's involvement.
Over time, clients tend to lose money in that secondary account and conclude that they're better off listening to Hogan. Of course, this approach has its risks.
"It works like a charm unless the brother-in-law picks a stock like Apple," Hogan said. Clients may question their advisor's value if a particular investment they gleaned from a friend pays off within a few months.
Nevertheless, financial advisors need to show openness to even the most dubious stock tips that clients hear through the grapevine. Shutting down discussion can rupture the relationship and breed ill will.
"You have to hear it out," Hogan said. "Usually, the advice clients are getting is something you've heard before like bitcoin or now it's marijuana stocks."
The Right Facts
The challenge of fending off bad advice that clients receive gets tougher when you're forging a new relationship. Incoming clients may hold a friend or family member in high regard and treat any pronouncement they make as gospel.
"Whenever you're dealing with a new client, you have to address their existing beliefs," said Martin Schamis, a certified financial planner in Philadelphia, Pa. It helps to identify whom they turn to for financial guidance in their personal life, and to what extent that guidance is sound.
By listening to understand — and not judge — you come away with a fuller sense of a client's receptivity to advice from others. For instance, you might detect a client's fondness for a wealthy uncle who seems to score big wins with every investment. Trying to compete with that uncle for your client's approval can backfire.
"There's nothing to be gained by attacking somebody's beliefs and putting them in a defensive posture," Schamis said. "Often, they've heard pieces of advice and put them together incorrectly," so laying out a comprehensive strategy enables them to analyze the situation in the proper context.
Sometimes, re-educating the client works wonders. By digging to determine the source of a client's advice, you can explore whether the source has a firm grasp of market data, trends and other relevant facts.
"If a client is ill-informed, we have access to resources and information that the client may not otherwise have access to," Schamis said. "So we might present that information and discuss the (investment) opportunity and the likely outcome" in light of the firm's proprietary research.
