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.