As a closet country music fan, I often think of Keith Urban’s immortal words as I build a marketing plan: “And I’ll earn your trust, making memories of us.”
This is really at the heart of all we do as financial advisors. Every interaction with a client is a chance to build good memories and earn trust.
We have had a whirlwind ride starting a new practice from scratch since we first opened our doors in Providence, R.I., in June of 2011. In the first 18 months we were privileged to have over 100 of our target clients engage us. Today, between 30% and 50% of all new clients come from referrals.
The referral number is the one I am most excited about, because at the heart of every referred client is trust. Our beloved clients love and trust us so much they are willing to put personal relationships on the line by referring friends and colleagues.
Here are some things we do to earn our clients’ trust:
Put Clients First
Good ethics build a bigger and better business. I first learned this concept back in 1989. At the time I was pinching myself because I had just gotten a position as vice president, officer and legal counsel to the ninth largest mutual fund board of directors. It was IDS then, later American Express; now it’s RiverSource. I was pinching myself because former President Gerald Ford was on the board.
IDS was the first company to embrace financial planning in a big way and that meant having a fiduciary duty as stated in SEC memos. I was struck with the reports to the board: Clients who had a financial plan (as opposed to those who just bought a product and therefore had an advisor who did not have a fiduciary duty) stayed with their advisors longer, purchased more products and were far less likely to sue. This looked like a winning business strategy to me and I have been preaching it ever since.
We constantly come across clients who already have good life insurance, disability, long-term care insurance and other investments. If what they have is as good as what we could offer them, we tell them to stay put. Of course we don’t make any money on this advice, but it’s the right thing to do for the client—and good for us, too.
One of the many valuable things I learned working for the general counsel at the IDS mutual fund board was that directors hate surprises. I was amazed at how much bad news they could take, if we prepared them for it well in advance.
Today I know that clients also hate surprises. We try to help our clients avoid unhappy outcomes in many ways.
One is to practice full disclosure up front. We tell clients the good, the bad and ugly about any recommendation before we let them pull the trigger. I usually preface the conversation by saying: “This is NOT the perfect investment. The perfect investment only goes up, never down; it is liquid at all times; it doesn’t have any penalties for early withdrawal and it is completely tax free!” From there I go on to explain how the investment we recommend differs from the “perfect investment.”
We try to set reasonable expectations up front. We look at historical returns carefully because clients will see a wide variety of outcomes depending on whether they are looking at one-, three-, five-, 10-, 20- or even 30-year returns.
Personally I think it is unlikely they are going to get the returns we have seen historically in the U.S. stock market over the last 30 years. However, the last 20 have shown some ups and some downs that are more likely to be closer to our future. I like to give them a range of expected returns.
I focus heavily on the losses of ’08. I will show them how each of our portfolios did in that year, along with the red ink, and then ask at which point are they calling me in tears in the middle of the night telling me they can’t take it anymore? This lets me know how risk-adverse they really are and when to add more bonds to their portfolio.
We advise our clients that in any 10-year period, we will see three years below our expectations, three years above and four years close to what we hoped to see for returns. This helps set the stage for later conversations. If we are in a down period or just underperforming, we remind them of our 3/3/4 year expectations.
Many money managers would be shocked on how much we downplay our good investment returns. Even in really good years, I tell clients something like this: “I know you think we are geniuses, but we got lucky this last year and I want to remind you there will be years when we will be looking at negative returns.”
Also if they will be getting statements in the near future, particularly ones laying out fees and expenses, I say: “Don’t be alarmed when you get your statements—we’ve already discussed this, but let me remind you of the fees and expenses.” With some products, like life insurance, that have high fees up front, it is critical to review costs and expectations a few times before the client pulls the trigger.
Send Detailed Notes
We send detailed follow-up notes after the meetings as a reminder of what we discussed. We found this was very important with more complicated products and services. It helps our clients remember the discussions better, and they are far less likely to come back to us later with questions. We are careful to document these notes in our database.
Add Extra Meetings
Before 9/11, the top advisors who worked with the affluent market had what was called the two-meeting close. The first meeting was to take in the data. The second meeting presented a plan and product solutions. Clients signed on in the second meeting.
It was fast and simple. Advisors could literally go from having a brand new prospect to a client with assets on the books in a matter of a few weeks. Because it was so efficient, it was also highly profitable since the advisor could see a lot more clients.
A lot has happened since then. A couple of major market reversals, the war on terror, and much higher taxes have all made clients a lot more fearful—which means it takes more effort to build trust than it did 15 years ago.
Our solution: We added a number of meetings to the client process. It is not unusual for us to take four meetings to do what we used to do in two.
Also a lot of our clients are lovely, kind, smart, educated people from other countries who are working in the U.S. on visas. They are not familiar with our tax structure or investment systems. We add at least two additional meetings for them so we can explain things in even more detail. So it is not unusual for us to take six meetings, just to get a client’s financial matters set up.
A lot of advisors would chafe at this—claiming it is not efficient. I disagree. Because we spend so much time getting a client’s affairs in order, they are more comfortable with the process and with us. They don’t feel rushed. All their questions are answered. The result is a strong relationship, which is far more efficient than a weak one.
Do What You Say
Small things can lift or tank a relationship. We don’t promise anything to our clients unless we know we can deliver them. This is one of reason we don’t promise returns.
Even following through with a simple promise, like to send them an article you mentioned, is a chance to prove you are worthy of trust. Doing what we tell our clients we will do builds a stronger relationship—just like my hero Keith Urban says.