Creating angel advocates out of our existing clients starts with a list that will make your compliance officer love you. (© Alberto Ruggieri/Illustration Works/Corbis)

I use compliance strategies to not only paper my files but also to create “angel advocates.”

What is an angel advocate? It is the name used at our firm to describe those beloved clients who like us so much they are willing to put their own reputation on the line to refer us to their friends and relatives. My goal is to have 90% of our new clients referred to us by angel advocates. We are more than halfway there. In Minnesota, we had a five-month period where 100% of our new clients were from referrals.

Creating angel advocates out of our existing clients starts with a list that will make your compliance officer love you. I have one overriding thought in every client interaction: If I were in arbitration, could I defend this recommendation to opposing counsel?

As an attorney who has served as an assistant district attorney and a public defender, it is easy for me to visualize how brutal it can be for advisors to defend themselves in court or arbitration.

Here are the steps we take to make sure every recommendation is defensible and builds trust with a future angel advocate.

The Right Mindset

First: We only make recommendations in the client’s best interest.

This is a mantra that I drill into the hearts and minds of every team member we hire. In fact, I won’t hire anyone unless they feel as strongly about this as I do. Once you have a clear North Star, it becomes very easy to give your clients solid, defensible advice. Your suggestions either line up with the North Star or they don’t.

One example is the review we do on a client’s insurance products: If we think we can get them something better or cheaper, we will recommend they switch. If the client doesn’t need insurance, we tell them that too. If what they have is good, they are advised to keep their existing policies.

Sure, we may not make any money on those cases, but it is central to creating angel advocates: telling clients the truth, even when we don’t get anything out of it.

We currently have a client, Jim from St. Paul, who has a $1 million dollar VA in his retirement plan. Now, there was a time when I really liked some of the guarantees in a VA—unfortunately those same guarantees almost bankrupted some reputable companies by ’09. Jim’s VA has some features and guarantees that I would label as adequate but not stellar. It also has a few time bombs, including the ability for the insurance company to take the annual fees up to over 4% if they feel like it. With fees that high, he would likely never be able to keep up with inflation.

In my mind, this is not a clear-cut case—I think in the long run, he will have more flexibility, more liquidity and better returns, not to mention cheaper fees, with managed money. However, he is facing high surrender charges if he bolts and he will lose some of the minimum guarantees.

My solution: Just tell him the truth—I don’t have strong feelings about this product. It is an OK product—it is not great, but there are pros and cons to leaving. My job is to educate and as long as the client has full disclosure, then I feel they can make decisions that are good for them.

Taking Notes

The next step: We keep copious notes for our files. When I was on the CFP Board of Ethics, I noticed advisors getting away with activity that would shock most readers. The reason? With all their failings (and bad motives) these advisors had a great paper file that could be relied on in court to defend their actions.

Although I have been in hundreds of advisors’ offices, I have never seen a firm that takes the level of notes we do.

After every meeting that I attend, I dictate notes that are saved in our contact management system. I especially cover areas where there is potential confusion or might be a future concern. For instance, when we are discussing life insurance, I make sure the client understands how the product works and the expenses. I will dictate everything I disclosed to them including what is guaranteed and what is not.

When talking about expected performance, I tell them that if our bogey is 7%, in a 10-year period there are likely going to be three years where we will be above that, three years, where we will below it and four years where we will be close. This way it is difficult for a client to come back later and say “you didn’t explain the fees” or “you didn’t explain there could be negative returns.” If they do, I can pull out the notes from the meeting to remind them of our conversations.

In addition to the dictated notes, I also write handwritten notes on my paper copy of the agenda. So if we are discussing investment philosophy, I will put a check by the box that says “discuss investment philosophy” and then handwrite in how they want their portfolio allocated.

If one of my ace client service managers is sitting in on a meeting with me, they will also prepare notes for the file. This sometimes means three sets.

If I am talking to a client on the phone, I will frequently open up our CRM system, put on my headphones and take notes right in the contact management software. This saves time—fortunately I can type and listen at the same time!

Another area, often overlooked, is taking notes on service requests. Let’s say we have to call the service desk at our custodian. My team knows it is important to log in the CRM: who on our team made the outgoing call, date and time. Then here is the most important part: the name of the person on the other end of the line and exactly what they advised. We put the service person’s comments in quotes to denote it is a verbatim report of what they told us. This has saved us more than once when we get differing responses from the service center.

Email Responsiveness

Finally: We get back to clients via email. After each meeting, we email the client and include these items as a general rule: homework assignments and due dates; the status report of anything we are working on; a full copy of their financial plan if it has been updated or discussed in the meeting; an updated copy of the one page financial plan summary, with any of the client’s notes or mine on it; performance reports.

Clients really appreciate this follow-up. Without it, because we cover so many items in a meeting, they could get confused.

I know our system is working because I got an email today from one of our beloved angel advocates. She had been talking us up to about a dozen of her colleagues and wanted to know if she could give them my contact information. Needless to say, I would be delighted.