Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Portfolio > Portfolio Construction

Tales from the Trenches

Your article was successfully shared with the contacts you provided.

Groucho Marx once joked puckishly: “I never forget a face — but in your case, I’ll make an exception!”

To be sure, seldom has there been an advisor who hasn’t truly felt that sentiment toward an unpleasant, if not exasperating, prospective client: the kind who’ll cheat you out of money; waste your time; then, after taking you for a ride, leave you feeling like a schlemiel.

Of course you pick yourself up and carry on, but you vow never to tangle with that type again. Indeed, more often than not, such experiences occur in the early years of an FA’s practice: You’re hungry for clients and need whatever accounts you can land. But once sucked into situations with a few of these folks, most advisors establish ways to avoid being pushed around or conned in the future.

“Every time you waive your basic rules about how you charge, you’re putting yourself out there to get taken,” says veteran advisor Meg Green, principal of Meg Green & Associates, a Royal Alliance affiliate in North Miami Beach, Fla.

Not that this hasn’t happened to Green herself. Recalling a prospect who, as she puts it, pushed her “greed button,” about 15 years ago she had a panicky call from a man who worked at a major local hospital. He needed financial advice for his sister-in-law pronto. She just received a whopping inheritance, and everybody was trying to rip her off.

“It was several million dollars that was at risk,” says Green, who agreed to meet with the man and his relatives at no charge. She spent a great deal of time with them, talking investments and making arrangements. But when she tried reaching the fellow later, she was shocked to discover that he’d made up the whole story under a fake name.

“He yanked our chain. They were phony. I think they just wanted to come in and pretend they were millionaires for an afternoon. I felt embarrassed, and I’ll never forget it,” says Green. Now for creating a financial plan, she charges most prospects a minimum of $2,500.

Advisor Pat Hinds, principal of Granite Financial, in St. Cloud, Minn., and affiliated with Securities America, still has a bitter taste from a time-robbing referral, the parent of an “A-plus client,” she says. The FA and staff spent four months working on immediate annuity investments so that the elderly prospect and her husband could receive a monthly income as well as gift their grandkids.

The woman refused to drive for 90 minutes to Hinds’ office, so the advisor twice made a mid-day trip to see her at home. Hinds also did tons of paperwork to consolidate the couple’s assets into the annuities. Then, the two abruptly changed their minds. “We had to jump through hoops with the insurance company for several weeks to straighten things out. But we weren’t paid a penny,” says Hinds. “They wound up cashing in the investments and disbursing the money to the grandchildren.”

After a few other hassles with prospects who ultimately opted against coming aboard, Hinds now charges a $100-per-hour fee for up-front work.

Certainly, advisors’ biggest headache prospects are those who perpetrate con games. Ken Buzek, partner in Buzek Kiplinger, in Strongsville, Ohio, for example, had one multi-million-dollar prospect of this ilk brought in by his unsuspecting CPA strategic partner. The man had been doing his own investing and asked Buzek to analyze his portfolio to “show him we could do better and why he should be working with us,” recalls the advisor.

“It was a very nice size client; so we spent three days analyzing all his holdings.” But after all that, the man refused to take Buzek’s calls for a full two months. Finally, the FA got through. “He told me: ‘Oh, I decided I’m doing OK; so I’ll just continue to do it myself.’

“I was so angry!” says Buzek, who is affiliated with Securities America. “He was very slick and conned us into doing a total review of his entire portfolio. He never paid us and then just walked away. He’d brought in all his statements. Generally when someone does that they’re seriously looking for professional help. I felt so stupid! Like, wow, we let that happen!”

Another FA was hoodwinked when a personal friend referred his father. “He told me he was waiting for his funds to clear in Europe and that several million dollars was going to come flying in and that he also had $16 million in an offshore corporation.”

The prospect said he had no liquid funds. So, hoping to nab him as a client, the advisor took a chance and lent him money to stay at a nearby hotel and rent a car. Then the guy just disappeared. The advisor went to his friend: “What’s with your father?”

“Look,” he said. “I can’t tell you anything about my father. He’s like that.” Dumbfounded, the FA berated himself for writing that check.

Mort Potoff, principal with MJP Associates, in Farmington, Conn., and affiliated with Royal Alliance, is super-careful about screening prospects. About three years ago, a 75-year-old referral came in. “The interview was just awful,” recalls Potoff, who thoroughly questions prospective clients as to their investments and risk tolerance.

Querying the woman about her funds, he repeatedly got: “I don’t want to give you the answer!”

“I finally said, ‘When you go to the dentist with a toothache and he asks, “Where is it?” do you say, “Find it!”‘ She looked at me really weirdly. When we finished, I said, ‘This isn’t going to work.’” The woman, from a poor background, was insecure about revealing specifics about her current wealth. “She squirrels away money,” says Potoff.

But the septuagenarian became a client when her tax attorney son phoned Potoff asking him to take her on. “I’ll be at every meeting!” he promised. “He’s kept his word.” Now when Mom starts to clam up, notes Potoff, her son commands, “Mother! Tell him what he wants to know!”

But sometimes even prospects who are totally open about their finances end up jerking advisors around. Pat Hinds had a would-be client with cash-flow problems who was set to undergo surgery not covered by insurance. She needed $38,000. Most of her assets were tied up in annuities or retirement accounts. Hinds did a tremendous amount of research to determine available options and tax ramifications.

“We probably spent between four and five hours planning and meeting,” she says. “We put all the paperwork together. But then the whole thing fell through” because the woman decided to postpone the medical procedure.

Hinds had been hoping to consolidate the prospect’s assets, which were spread among several advisors. “But now that there isn’t the pressure of the procedure,” she says, “everything is still out there drifting like before we tried to put her financial picture into better shape.”

Some advisors, however, are only too glad to be auditioned. Wachovia Securities managing director Barbara Jaffe, who heads a team of 10 in Jacksonville, Fla., and manages assets of $500 million, believes that up-front pro bono work is “part of the prospecting process. We’ve done quite a bit. If they decide to go elsewhere, that’s OK because they haven’t committed to me. It was my choice to spend the time. It happens a lot.”

For her part, Meg Green insists that most advisors don’t charge prospects for a financial plan because “they’re afraid they won’t get the client. But I think that if you do charge, you’ll get the client — at least the kind of client that I want.”

However, “the rules can be bent,” notes Green, when, for example, the referral source is another local professional. “I’ll meet the prospect for a consultation; but I won’t go over their whole portfolio, tell them what to do, and then let them leave. I just don’t do that, not even in the hopes of getting the account.”

And she draws the line, too, at personal friends seeking favors. One recently called asking her to work on his mother’s thicket of investments. “I said, ‘No — that’s a huge job. But if you’d like to hire me to help your mom, I’d be happy.’ The whole thing put me in an uncomfortable position.

“So I said, ‘Bring the stuff in, I’ll go over it and then send you in the right direction.’ But that wasn’t good enough for him.

“A lot of people don’t want to pay for financial advice because so many [advisors] give it away.”


Nightmare Clients

Rogue clients can be just as objectionable — if not more so — as prospects from hell. A few horror stories from advisors:

Ken Buzek, principal of Buzek Kiplinger, a Securities America affiliate in Strongsville, Ohio, recalls a scenario with married clients who were divorcing. The husband, serving an ultimatum, told Buzek he “couldn’t keep his soon-to-be-ex-wife as a client — that it had to be him or nobody. He knew I had other clients that worked in his department at his company, so he was giving me a threat.

“But I let him know it wasn’t his decision as to whether or not we’d continue to work with her, him, both or neither. Once he realized that he couldn’t push us around — that we were going to keep his wife as our client — he went away.”

Barbara Jaffe, a managing director at Wachovia Securities, in Jacksonville, Fla., recently severed ties with a demanding, non-fee-based client with an outsized sense of entitlement who’d take her ideas about bond investing but buy the bonds elsewhere — “for [about] a dollar less,” she says. “No matter what bonds we showed him, he said he could find better somewhere else. He was giving us no revenue.

“Finally we told him it was unfair to us to want [so much] time and attention. He wasn’t interested in paying a fee for [upgraded service] because it was better to have something for free! Even though he wanted to stay, we said it wasn’t a possibility. The most difficult clients are the ones that are demanding and want all your time for free.”

Some clients insist that advisors stray from the type of investing they’re best at and recommend. John Cordova, principal of Pacific Wealth Management, in Orange, Calif., and affiliated with First Allied, recalls a client whose investments, in the 1990s, were doing quite well. Then he began to badger Cordova to invest in the same securities his neighbor’s advisor had put him into and, likewise, he expected, “get X amount in two months. I said that putting his whole portfolio at risk didn’t make a lot of sense. He told me, ‘Well, I’m going to move my account.’ And he did.

“In 2003, he called to say he’d lost close to 45 percent of his portfolio,” says Cordova, who is an arbitrator with the N.A.S.D. “He said, ‘I should have never left you. That other broker put all my money on the risky side of the portfolio.’

“It was pretty devastating. But I had to decide whether to take this guy back. I was hurt when he left. But, I figured, we all make mistakes. So,” says Cordova, “I took him back and pretty much dictated the allocation of his portfolio. You have to take command of the account if you want to take the responsibility.”

Barbara Jaffe had a client who really took the cake. Well, not the cake: the umbrellas. “He liked to come up and hang out. One Christmas, we had some umbrellas that we were giving out to clients. There was a whole box of them, and he just helped himself to not one, but a few,” she recalls. The same guy was in the habit of mooching reams of copy paper every time he visited Jaffe’s office.

“Eventually I told him I didn’t feel that The Jaffe Group was servicing his needs — which, I guess, meant more paper and more umbrellas! I didn’t like what he was doing, and we ended the relationship. Sometimes,” sighs the advisor, “people aren’t so nice.” — J.W.R.



© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.