Recently, I had a conversation with a great friend of mine. We were reminiscing about the "good old days." But, almost immediately afterward, we remembered a period when her days weren't so good.
She had been a pretty major upper-level management player in a large telecommunications company. The company, concerned with the rising costs in their competitive marketplace, decided to offer early retirement to some of their employees. To facilitate the change, they even brought in a broker for a well-known brokerage house to host a number of investment seminars for their employees considering an early retirement. Not being the savviest with all things financial, she attended one of these workshops, and she liked what she heard. After almost 20 years of meritorious service, she decided to take the early retirement, and enjoy some R&R.
Up until she decided to retire, the bulk of my friend's 401(k) had been invested in a low-risk mutual fund and the fund had enjoyed moderate growth. In her tenure with her company, it had grown into about $400,000; a pretty tidy sum. After meeting with the broker recommended by her corporate HR department, she transferred the entire sum into his "capable" hands, with instructions to leave the funds in low-risk investments. It seemed as if all would be well.
It wasn't. In short order, she began to realize a fairly steady decline in the balance of her account. Upon further investigation, she discovered that rather than place her funds in low-risk investments as she had requested, the broker had invested in high-risk Internet and technology companies. To sum up the story, her account took a hit of almost $175,000!
Furious, she called the broker for an immediate explanation. The call went unanswered for four days, after which the broker called and explained that it he had done "what he thought best, for her best interest." To add further insult, the broker told my friend "if she had been more knowledgeable, this probably could have been avoided altogether." In short, he felt it was her fault that the funds had been lost. Had she been smarter when it came to finances, she wouldn't be in this predicament.
You are probably wondering what this story has to do with the price of tea in China, right? Well, it is simply a lesson by example. Ever heard the old adage, "Don't do as I do, do as I say"? That was the broker's philosophy. He was convinced he knew his client's wishes better than she did. But in today's volatile marketplace, that's not a very healthy attitude to have, especially when you are dealing with a client's hard-earned life savings.
One of the most important keys to success in this, or any business for that matter, is a true understanding of and respect for what your client needs. Without it, you may as well be shooting in the dark. Another thing to remember (and not that it isn't possible) is that you probably aren't clairvoyant either. One of the biggest mistakes you can make is to assume that you know what your client wants, without even asking them. Yet, every day, stories such as what happened to my friend have become more common than not. The saddest part is that individuals who suffer a financial loss like that never recover.
Now, this is not intended to bash brokers or the brokerage industry. What happened to my friend was a random occurrence. Similar circumstances could happen in almost any financial service situation you can to imagine. I mention it because this is an example that truly demonstrates how important communication with your client is.
Remember when I mentioned that my friend wasn't very savvy in money matters? It's much safer to assume the same of most of your clients - even those most seasoned in financial planning. It's difficult to know everything about an industry that turns on a dime. And even consumers who constantly have a finger on the pulse of their financial picture can learn a thing or two. Keeping your ears open, and keeping the lines of communication with your clients open, can be of educational benefit to you as well. You may even find that the more you listen to your clients, the more you may start to see trends in your market that no individual carrier news release can provide. Sure, the company has good stats and information on the direction the market may or may not take, but sometimes the best information comes directly from your market - the consumer.
Your job goes beyond just being an advisor. You are a voice of reason, a conscience, a "confessor" and foremost, an educator. Don't get all these different roles mixed up. You are being trusted with someone's financial future. Granted, that is no small task. But as cliché as it is, consider this; try putting yourself in your clients' shoes. Would you trust you? Would you think that you had your best interest in mind? At the end of the day, would you feel that working with you was an excellent choice? A bit more difficult than it sounds, isn't it? Now you know how your clients feel. They are taking a huge gamble on you. Return the favor, and take a chance that your client will trust you enough to do the right thing on their behalf. And remember, disappointing them is not an option.
My friend has since recovered from the blow of her financial loss. She made the decision to go back to work for a while; to a telecom competitor, no less. It was a painful and costly lesson to learn, but learn it she did. And now, she is one of the savviest people I know when it comes to personal finance. She has read enough on the subject to make her dangerous. Well, maybe not dangerous - just smarter.
How "dangerous" are you?
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