From the May 2008 issue of Wealth Manager Web • Subscribe!

Nobody's Perfect

Making a mistake with a client can fill you with dread like nothing else. CFP Patti Houlihan remembers the horrible feeling that overcame her the minute she realized she had botched a client's stock order. It happened about 20 years ago, when Houlihan was new to the business. The client had decided to sell some shares, but when Houlihan put the sale through, she entered an incorrect symbol. A few days later, she noticed she had unloaded the wrong stock.

"It was terrible," says Houlihan, whose fee-only firm in Reston, Va. has $125 million under management. "I told the client what happened and wrote her a check for the money. It was really hard because I was a single working mother."

However, the client stuck with Houlihan and is still with her today. Why? "Because I paid for it," Houlihan explains. "If I make a mistake, I correct it. If there's any cost, I bear it."

How you handle mistakes is crucial to your business. Customer service experts explain that clients don't expect you to be perfect, but they will fly to a competitor if you react to a service failure in the wrong way. Clients want an advisor who has integrity and is worthy of their trust. And clients recognize that the way you manage errors is a clear indication of your integrity and trustworthiness. In fact, when you do a fantastic job of correcting a problem, it gives you the opportunity to cement your relationship with your clients in a more significant and enduring way.

According to researchers at Rutgers University, customer loyalty actually increases when a firm satisfies a client after a bad experience. They also found, however, that when a company clumsily addresses a gaffe, a client will spread the news. In fact on average, customers tell between 10 and 20 people when a service provider fails to defuse a situation.

Meg Green, a CFP and chief executive of Meg Green & Associates in Miami, says errors happen in this business, and there's no way of avoiding them entirely. "We're really anal here, and we're always scared of making a mistake, but every once in a while there's going to be something that makes you say, 'Oh my gosh!'" Green explains. For advisors, lapses may range from something as simple as forgetting to return a client's phone call or forgetting to get a client's signature, to something much larger--like forgetting to put a mutual fund sale through.

Nevertheless, there are simple steps a wealth manager can take to recover from a stumble. Consider what David Neeleman, the chief executive of Jet Blue, did after his company messed up in 2007. A winter ice storm in New York had caused flight delays and cancellations, but what should have been a relatively routine situation escalated into a disaster after the airline kept more than 1,000 passengers stuck on the tarmac for hours and grounded most of its planes for the next week. Neeleman issued a sweeping apology, took full responsibility for the problems and offered refunds to all the affected customers. He amplified his apology in media interviews, advertisements and on a YouTube video. Moreover, he expressed empathy and issued new rules, including a passenger bill of rights and a reimbursement system for customers who experience flight delays in the future.

Indeed, as Neeleman demonstrated, the first task in stemming a blunder is to acknowledge it and apologize as soon as possible. Never try to cover up or hope the client won't notice. "By 'fessing up,' you re-establish some trust with the client right away," says George Cloutier, chairman and chief executive officer of American Management Services, a consulting firm that specializes in helping small and medium-sized businesses expand. "An apology lets them know you're on top of the problem and willing to do what it takes to make it up to them," he adds.

Apologies do wield a lot of power. And it's a phenomenon that even doctors are noticing. As part of a move to curb medical malpractice lawsuits, some physicians are now apologizing to their patients after they've made an error. At the University of Michigan's medical care system, doctors give patients full explanations when errors arise and offer apologies when they mess up. Since 2002, when the say-you're-sorry policy was put in place, the number of lawsuits against the system has dropped by half, and legal costs have been reduced by more than $2 million a year.

After admitting an error and apologizing for it, advisors should shoulder all the blame for the mistake. Regardless of the circumstances, advisors earn their clients' respect when they embrace an error--even when it was something out of their control. It doesn't help to point fingers at targets like the mail or faulty software. In the event that an assistant or another person in the company was responsible for fouling something up, the wealth manager should still bear the brunt of the mistake and take full responsibility for it. "The client hired you," Cloutier says. "He didn't hire your assistant."

For her part, Green likes to use the collective "we" when taking responsibility for an error. She'll say to her clients: "We really screwed up. We're really sorry." By framing the apology this way, Green says it "gives the client a feeling of confidence that there is a team of people working on their behalf."

The final step in dealing with a mistake is to give the client your every assurance that it won't happen again. However, assuring the client that you won't repeat the mistake in the future doesn't mean you have to explain why the error occurred. Research indicates that explanations can take you in the wrong direction and undermine your goal of taking full responsibility for the mistake.

Instead, advisors should emphasize that new procedures are in place to avoid future problems. Even so, some clients may ask for an explanation. When giving any details, wealth managers should not suggest anything or anyone else--especially the client--is to blame.

According to experts, explanations work best when they flow right back into a declaration that the mishap won't happen again. Ultimately, clients don't want excuses; they want assurances that something significant was done to correct the problem. They want to feel like the ordeal had some lasting ramifications.

While it is important for wealth managers to admit mistakes, there are things that they should avoid apologizing for. Jim Blair, a CFP who manages $500 million in assets as a principal at Moneta Group Investment Advisors in Clayton, Mo., says wealth managers should eschew taking responsibility for swings in portfolio values. "We know there's going to be volatility in the market, but as long as you've prepared your clients for that, there's nothing to apologize for," he says. "During those times, clients want a voice of stability. They don't want to hear their advisor talking as if he's unsure of the fundamentals."

Even though Blair does not apologize for stock market dips, he will reach out to customers through emails and letters during down periods to "anticipate my clients' fears and concerns." In the case of his more sensitive clients, Blair will call them on the phone to make sure they're okay and offer a little empathy. "This is a service business, and you have to confront issues," he says. "When I speak to my clients on the phone, I can tell how frustrated they are, and I can be more caring if necessary."

To be sure, some clients will blame advisors during bear markets. One way to keep this problem to a minimum is to set realistic explanations. "You have to have ugly conversations with your clients about when the market is going to go down," says CFP Mark Cortazzo, a senior partner at MACRO consulting in Parsippany, N.J. "Advisors too often say 'if' the market is going to go down. But it's not 'if.' The market will go down, and you have to talk about that."

Not long ago, Cortazzo met with potential clients who wanted to retire on a $2 million inheritance they had recently received. The man and woman were both in their mid-50s, and another advisor had told them they could withdraw 9 percent a year. But after a detailed analysis, Cortazzo realized they could run out of cash in a decade or two. He told them they could withdraw 5 percent a year, but really should keep working for a few more years and wait to start living off the inheritance.

"I lost their business to the other guy," Cortazzo says. "But that's better than just telling them what they want to hear. What's going to happen in a few years when they don't have the money you promised them? They'll blame you for their problems. And it really will be your fault."

Mark Francis Cohen (, whose work has appeared in the Washington Post and the New York Times, is a Washington, D.C.-based journalist.

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