I’ve had the privilege to work at a very large three billion dollar Registered Investment Advisor (RIA), a three hundred million dollar RIA and consulted other RIA’s. One of the themes that cause so many problems with financial advisor-client relationships is “mutual respect.”
One example, a few years ago, I met with an advisor (let's call him Bill). Bill experienced a nightmare that many financial advisors fear similar to the fear of getting some incurable disease. Yes, this was a serious situation that cost him his job, damaged his reputation and some other pain points. A few years before this nightmare Bill had landed a challenging financial client and over the years continued to spend an abnormal amount of energy to maintain the relationship.
Then one day Bill received an email reply from this client (let's call him Joe) giving him an update on his business trip to London and instructions that he would need some funds wired to him. This trip had not been as smooth as the last several to London, and this time he had his personal belongings, his passport and cell phone stolen from his hotel. Joe also indicated that he needed a new suit and personal items before the next morning business meeting. Joe also mentioned in his email that he was closing on an apartment while in London and needed $277,000 wired to the title company for the closing later the next day. Fortunately, Joe provided all the necessary wire instructions for the local title company and hotel. According to the pictures, it was a pretty nice apartment with some great views.
Of course, Bill was a bit surprised and disappointed that Joe had not mentioned the coming purchase but went ahead and sold off some investments to raise the necessary capital. Bill would also be able to submit the wire request form and wire out the funds to meet Joe’s deadline. Bill recalled at this point that he paused and decided to reply to Joe’s email. Being the advisor, he decided that he probably should question his client's decision to purchase the new apartment because it would materially affect the financial planning goals that Joe established two years ago. Bill also remembers being very apprehensive to reply to Joe but decided that it was his role as an advisor to bring the purchase into question. The advisor's request was simple,
“Hey Joe – would you care to discuss this new apartment in relationship to your established financial goals. Can we talk on the phone about this?”
Not more than an hour went by when he received a rather rude and intimidating reply from Joe,
“Hey Bill – I appreciate that you are trying to look out for me, but like I’ve told you numerous times I know what I’m doing, and I don’t need your advice just your execution to my instructions. Also if you remember from my earlier email my cell phone was stolen, and right now I need those funds so I can replace what was stolen. I never imaged getting a new passport would be such a headache, so I don’t have any time to spend on the phone discussing something I’ve already decided to do. I pay you a lot of money to handle my requests. Do I need to start looking for another financial advisor? I already sent you all the information to wire funds to my hotel and title company. If you need further clarification to the simple instructions I sent you, then I guess you can email me again, and I can write the request in simple 3rd-grade bullet point steps. Thanks, Joe”
Sadly this was not out of character for Joe, and anyone could verify that from just reading through all of Joe's previous emails to Bill. So Bill filled out both wire forms and emailed them both to Joe for signature. Thirty minutes later Bill received the signed forms back and submitted both to the custodian. The next day Bill logged into the custodian's website and confirmed both wires. At this point, Bill recalls feeling relieved that he had avoided a disaster with his client until he received a direct call from Joe the following day.
Bill: Hi Joe, are you back up and running?
Joe: Bill? What are you talking about? Nevermind, can you explain to me why I see two different amounts of cash leaving my account yesterday? One was for $3,700, and the other was for $277,000? I don’t remember telling you to transfer cash?
At this point, Bill’s world crashed into the Sun and started to burn. Later discovered, a hacker had hacked Joe’s email, read through all the previous emails and responded to the last email from Bill. Reading through all the previous emails gave all the ammo the hacker needed to pull off the scam. Even though the custodian reimbursed Joe, Bill’s RIA had to cover the total amount stolen. A simple conversation with Joe on the phone would have prevented this damaging career event.
But why did Bill not hold out for a phone call conversation? The simple answer, “No mutual respect.” Had Bill and Joe established mutual respect at the start of the relationship the situation most likely would have ended better and strengthened the relationship further. For example, if Bill knew that Joe always respected Bill’s advice, whether he executed on it or not, then tactics the hacker used in the email to intimidate Bill would most likely not have worked. Bill most likely would have realized that something was off and looked for a phone confirmation from Joe.
In conclusion, my advice is never to continue a financial advisory relationship that is not mutually respected. Bad things often happen when relationships are not mutually respected. And advisors that do not respect their clients are just as guilty as clients that disrespect their advisors. How do you identify this kind of relationship? Simple, it starts when either the client or advisor starts to talk down to the other person. If you are feeling intimidated by the person sitting across from you then most likely are being disrespected and should get up and leave.
What I have found in my life journeys is that bad people often trespass on good principles and give very compelling reasons to break good principles for some exceptional gain. Life can be challenging and when offers to avoid those challenges and obstacles, it is often easy to consider the easy way out. Bad people understand this probably better than most individuals and prey on those who would rather avoid. But it is by comparing life’s offers to great principles that can often reveal hurtful relationships. I find the most challenging part of life is searching, learning and applying great principles to life situations. And when I trespass on my principles, I often discover a healthy reminder.
I always look forward to your comments, stories, etc. Please post or send me a response.
John Hamel is the Managing Member of Austec Wealth Management, LLC. helping current & retired business owners optimize relative to their company value and personal life.