Due diligence? Get serious, Pt. 2

By Steven McCarty

The National Ethics Association


In part one of this series, I discussed how due diligence went past due in our business... with devastating results. In this article, we will talk about the resurgence of due diligence -- and what it all means.

Clearly, the lack of due diligence has affected your clients both objectively and subjectively. Objectively, many have lost tremendous wealth due to the economic meltdown that resulted in part from poor due diligence. Subjectively, Wall Street incompetence, greed and malfeasance have transformed client good will and trust into worthless derivatives.

Not to beat a dead bull, but the Bernie Madoff scandal has been incredibly damaging. Clients are now asking themselves, "How could this have happened?" "Were regulators asleep at the switch?" "Can I really trust my own advisor?"

Some clients have become so cautious as a result that their money is now weighted down with a heavy anchor of fear. They're unable to make important financial decisions or allocate funds for new investments. If paralysis continues after the market hits bottom, it may well hurt their long-term financial prospects.

Another implication: Clients are embracing the President Reagan-inspired maxim, "trust, but verify." They're putting advisor backgrounds under a steely-eyed microscope, using FINRA's BrokerCheck service, and calling insurance and securities departments themselves. Many also rely on the National Ethics Bureau to do their legwork.

Clients are also stampeding to safety like a herd of panicked wildebeests (watch out for that cliff, guys). This means they are choosing fixed instruments over variable, and branded top-rated carriers over low-rated no-names.

What will all this mean to you? Advisors must now embrace an unprecedented level of transparency. This means wearing their licenses and experience on their sleeve and communicating the substance of their character rather than the flash of their image.

So be prepared for a longer sales process. If you used to close a sale in two meetings, three or more meetings may now become the norm. Trust me... this is great news! The more time you spend in discovery, the stronger your client relationships will be, the better your recommendations -- and the less chance you'll get sued.

So with more client due diligence, what else can you do? Here are a couple techniques to consider:

No 1: Check your marketing literature. Remove overblown marketing claims and delete all exclamation points. Double down on hard-core facts. Let understatement rule.

No. 2: Focus on building relationships. The more time you spend in authentic client interactions, the more clients will truly understand you have their best interests at heart.

No. 3: Verify your online content. Be sure your Web site is in compliance and is current.

The bottom line: In this new era, it's time to remove all barriers that inhibit full disclosure and trust. Due diligence is now serious stuff... so get serious.

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