The Advisor's Professional Library

Meeting and Exceeding Clients and Regulators’ Expectations

January 1, 2012

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There is an old saying, “Expect nothing and you’ll never be disappointed.” Very few clients, however, enter into an advisory relationship with low expectations. Conversely, they usually go into a relationship with high expectations of an advisory firm, and certainly expect better results than if they managed their nest egg themselves.

In almost every business, the key to avoiding complaints and increasing customer satisfaction is to meet or exceed expectations. For RIAs, this can be very difficult. Sometimes, the market doesn’t cooperate and clients aren’t happy with the size of their portfolio. Nevertheless, there are ways for RIAs to increase customer satisfaction, which help firms to retain current clients and attract new ones.

Why Meeting or Exceeding Expectations Is so Difficult

Meeting or exceeding clients’ expectations is difficult, because each individual has different standards. Some clients expect to see their account grow year after year, even when the economy is floundering. They may become disenchanted with their advisory firm, because a friend or relative’s financial adviser has purportedly achieved better investment returns. Clients may be disappointed just because their returns are not keeping up with their expenditures, even though they are spending too much.

The expectations of certain clients may be based on hard data. They might look at a benchmark like the S&P 500 to see how well their account is performing. If their investments are not matching or exceeding the S&P 500 or some other benchmark, it is doubtful that the RIA will meet or exceed the client’s expectations. Some clients’ expectations arise from the investment policy statement created at the onset of the advisory relationship. Their satisfaction or dissatisfaction might be based on whether they are on target to meet their investment goals.

In some cases, RIAs raise their clients’ expectations too high in marketing presentations and advertisements. As they court new clients, advisory firms may make impossible promises or they set the bar too high. Failing to deliver on promises and assurances is a recipe for low customer satisfaction. Disappointed clients are more likely to complain to securities regulators and pursue legal action against an RIA. It is also likely that these statements and promises will come back to haunt an RIA during a compliance examination.

There is no assurance that RIAs will meet or exceed clients’ expectations, even if they fulfill all of their fiduciary obligations. Certainly, however, RIAs should avoid misstatements and omissions of material facts in their dealings with clients and prospective clients.

In promoting their advisory firms, RIAs try to tout their skill and expertise without raising expectations too high. No RIA should state or imply that success is a sure thing or that the client’s portfolio will match or exceed a particular benchmark. RIAs must also comply with Rule 206(4)-1 under the Investment Advisers Act, prohibiting advertisements that are false or misleading in any way.

RIAs may be subjected to regulatory scrutiny anyway, even if all of their clients are satisfied with the advisory firm. In written materials distributed by SEC staff members at the 2009 CCOutreach Regional Seminars, the Commission cited several examples of questions examiners ask to determine if an RIA has deficient practices and control weaknesses. Examiners will seek answers to the following questions.

  • Does the RIA have processes, including supervisory procedures, ensuring that the investment advice provided to each client is consistent with the client’s expectations, circumstances, restrictions, direction, and risk tolerance, as well as marketing materials and regulatory requirements?
  • Does the RIA have an effective means for evaluating investment decisions after they are implemented to determine if the outcomes are consistent with clients’ expectations and restrictions?

If outcomes did deviate from clients’ expectations, examiners may ask if appropriate remedial actions were taken.

Surveys to Measure Clients’ Expectations and Satisfaction

RIAs will sometimes conduct a survey of their clients determining if the firm is meeting or exceeding their expectations. Surveys like this can help firms identify potential problems and improve client satisfaction. Ideally, RIAs will use survey results to hone in on clients’ expectations and examine whether they are being met or not. Furthermore, the firm can make improvements that are likely to increase client satisfaction and prevent complaints.

RIAs can use survey results to correct problems that might cause a client to terminate the advisory relationship. Results can also be used to improve policies and procedures. Although robust policies and procedures are designed to primarily protect investors and ensure compliance, they can also be drafted with the goal of improving customer service and client satisfaction.

Even if a client survey is conducted by a third party, using the results in advertisements can raise serious compliance problems. Quoting favorable client comments in an advertisement or marketing presentation is a testimonial, which is prohibited by Rule 206(4)-1. Testimonials are inherently misleading, because RIAs will glean the good comments from the survey for use in an ad and are likely to discard the unfavorable ones. Examiners know that comments from unhappy clients will not be utilized in advertisements and marketing materials.

Another risk is that questions in the survey might be slanted to elicit a favorable response, such as asking what clients like best about the RIA. The survey might not ask what clients like least about the firm. It is very doubtful that the RIA will incorporate negative feedback in an advertisement or marketing piece.

TD Ameritrade Recommendations

In a recent white paper entitled Establishing Trust in the Advisor-Client Relationship, TD Ameritrade Institutional offered a number of valuable suggestions such as:

  • listen and learn what is important to each client;
  • establish realistic expectations;
  • communicate with your clients to ensure they understand risk and risk management;
  • initiate a thorough and transparent conversation regarding fees;
  • learn about the client’s cultural expectations, family history, and values;
  • avoid neglecting relationships and communicate with clients; and
  • continuously build and develop skills, as well as knowledge and credibility.

The Big Picture

RIAs should always strive to meet or exceed their clients’ expectations. Client satisfaction can remain high, even if the individual’s portfolio has not performed as expected. Advisory firms can meet or exceed clients’ expectations with exceptional customer service and responsiveness to questions or concerns. Clients want to hear from their investment advisors, especially during difficult economic times. A reassuring presence can mean just as much as a performance report showing positive results for the client during that quarter.

Many clients enter into a new advisory relationship, because their previous RIA did not meet their expectations. Finding out where that previous advisor fell short can help RIAs avoid making the same mistakes.

Meeting or exceeding clients’ expectations should always begin with strict adherence to an RIA’s fiduciary obligations of care and loyalty. Clients should expect nothing less than an RIA acting in their best interest.

Les Abromovitz

Les Abromovitz

Les Abromovitz is the author of The Investment Advisor’s Compliance Guide, published by The National Underwriter Company/ALM Media.

An attorney and member of the Pennsylvania bar, Les has handled hundreds of consulting and publishing projects for National Compliance Services,, a leading compliance and regulatory services firm. He has conducted a number of seminars and training sessions dealing with compliance subjects. Les is also the author of several white papers that analyze compliance issues impacting Registered Investment Advisors (RIAs)‎.

To contact Mr. Abromovitz, email or call 561-330-7645 Ext. 213‎.