Are We Required to Protect Clients From Themselves?

The above question resonated with me in listening to a discussion of a case study in a recent CFA Webinar. In this hypothetical case, the client of an advisor had directed the advisor to execute the purchase of an investment that the advisor had specifically advised his client not to undertake. The advisor followed his client’s direction to place the order, but it resulted in a significant loss of value – and the client filed legal action against the advisor and firm for apparently allowing (or not working hard enough to prevent) him from make a bad investment. The participants were considering what the advisor **SHOULD HAVE** done to prevent this bad outcome.

Our last newsletter on the topic of what do advisors get paid to do clearly acknowledges that we are moving into the area where our role requires a substantially greater set of tools in analyzing and improving our clients’ ability to make prudent and effective decisions regarding their financial situation…including investments.

It is clear that the requirement to “know your client” is getting to the point of requiring a much more significant dive into profiling how they think and make decisions – and a much better sense of overall personality traits.

We think the first step in this process is more active and effective communication.

A recent article by Deena Katz (See Financial Advisor, 10/4/2014 publication on Communication Dynamics) cites results of a recent survey that while 56% of advisors have communication service standards, only 30% actually review and reinforce them with clients.

The survey, Trends in Client Communication 2014 (produced by the Research & Practice Institute of the Financial Planning Association FPA) is worth your time to review. It has some helpful hints and ideas for improving your communications – and thus growing your “relationship capital”.

We also agree with Deena that client profiling is a logical next step to enhance our ability to more adroitly tailor our services appropriately based on a more extensive knowledge of who they are. Stay tuned for more information on a couples test we will be making available soon.

Finally, keep in mind….

“A wise man doesn’t give the right answers, he poses the right questions.”
Claude Levi-Strauss