Staying Ahead of Difficult Investors

5 Ways to Protect Your Reputation

You’re there for your clients through life’s most landmark moments—births, bris ceremonies, baptisms, graduations, marriages, home purchases, retirements, and even deaths. You become an extension of your clients’ families in some ways, because you share a mutually vulnerable relationship with them. For your clients, it’s all about their lives and their futures. For you, it’s your career and your good name. So what can you do to avoid accusations of wrongdoing from a client or a client’s family, were they to have a negative experience with their investments? How can you stay ahead of the curve enough to preserve your good name?

1. Keep Records on Money Management Consultations
2. Maintain as much client information as you can when you transition
3. Set realistic expectations around investment performance and strategy
4. Avoid Selling Unnecessary or Unsuitable Products
5. Give All Clients Equal Respect and Priority

1. Keep Records on Money Management Consultations

​It goes without saying that good, clear meeting notes and copies of your transactions are both key to your career success as well as your ability to defend your good name. Unfortunately, some advisors choose to let this best practice go by the wayside. This is a recipe for disaster, as those advisors will find it difficult to build lasting relationships with clients and defend themselves in difficult times.

Advisors who do keep good records, on the other hand, have a greater chance of self-preservation. Late last year, one AdvisorLaw client was accused of taking out a life insurance policy without his client’s consent. During the arbitration hearing, the advisor was able to present a copy of the life insurance policy application signed by the client. As a result, the advisor was able to have the false accusation expunged from his BrokerCheck profile.

2. Maintain as much client information as you can when you transition

If you plan to transition out of your current firm, take as much of your past client information with you as is permissible by your employment agreement. It may seem unnecessary, but holding on to your client notes can be the thing that saves you, if a sneaky or disgruntled client comes back to wreak havoc on your career.

For example, an advisor client of ours was recently accused of wrongfully selling a tenancy-in-common (TIC) investment to two seasoned investors, just before the 2008 market crash. The claim, raised until six years after the customers sold the investment and the advisor changed firms, alleged that the investment was unsuitable—even though both customers met the suitability requirements for the TIC investment, and the TIC was suitable for the customers, based on their overall portfolios. 

During his hearing for expungement of the dispute, the advisor was able to turn the conversation around by providing a copy of the PPM that had been given to the customers. The PPM showed that both investors met the suitability requirements of the TIC and that the customers were made aware of the risks associated with the investments. He was also able to share copies of the customers’ investment applications, a record of the extensive conversations that he’d had with the customers about the investment, and additional evidence to corroborate his claim of no wrongdoing. As a result of the advisor’s ability to provide proof, he was able to remove the wrongful claim of unsuitability from his BrokerCheck record.

3. Set realistic expectations around investment performance and strategy

Trust and vulnerability are key pillars in the advisor-investor relationship. Your investor clients are constantly vulnerable to your recommendations and judgment, and they’re trusting you to do right by them. To protect your good name, your best bet is to always act in the best interest of the client and to set realistic expectations for an investment. Be explicit and candid about the risks, and avoid inflating the investment’s potential outcomes.​

4. Avoid Selling Unnecessary or Unsuitable Products

Sometimes, you may find yourself towing the line between generating profits for your firm and acting in the best interests of your investor clients. While your clients’ needs always take precedence, there might have been times when you found yourself pressured into a situation where you felt the need to facilitate a transaction for a proprietary product that the client did not need or select an investment that wasn’t a good match for a client’s risk profile.

Being objective in a sales- and performance-driven role is exceptionally difficult, yet, more often than not, it is the best path to take. When you avoid selling unnecessary products and unsuitable investments, you’re protecting the client, as conflicts of interest such as these can impose a risk upon meeting client objectives. Likewise, you’re also avoiding potential FINRA investigations and ultimately protecting your career. Avoiding conflicts of interests helps to ensure that everyone wins in the end.

5. Give All Clients Equal Respect and Priority

It’s normal to give priority to the people who share a stronger bond with us. Though, in the investment business, it’s best to avoid falling prey to this tendency, even if we want to attach the label of “favorite” or “most important” to our top investors or the folks to whom we feel closest.

Giving one client priority over another or, perhaps, giving your most profitable investors exclusive access to certain investments, can lead to a downgrade in client satisfaction and blame. Giving all clients the same time and opportunities is the pathway to greater success for all involved. When clients are happy and have equal access to suitable investment opportunities, you open the door to improving your clients’ lives, strengthening the meaning of your good name, and elevating your career.

Doc Kennedy
President and Founder
AdvisorLaw, LLC