As advisors we Do the Right Thing naturally -- don't we? Thinking through what it means to be a truly trusted go-to money M.D.

January 6, 2014 — 2:52 AM UTC by Brooke Southall


Brooke’s Note; I recall at summer camp the director occasionally reading us a letter from an alumnus who said he owed much of his business success to what he had learned in the New Hampshire woods at our camp. I also recall thinking, as a 12 year-old, that dementia may have begun to set in for the letter writers. Didn’t they recall that we spent our days paddling, shagging flies and getting in forbidden water fights? But we also learned plenty about honesty and integrity. Everything from being late to borrowing a Frisbee without permission were basically unacceptable. I’m realizing it’s more and more likely that I could become the author of one of those letters to that same camp in 2014.

Consider the Dalai Lama walking across a sunlit green field, the man of love and nature leaving crushed microorganisms in his wake and vacuuming up others that have the misfortune to fly into his lungs. Thought of in this reductionist way, this exemplar of human trust is also a killing machine.

The un-artful point I’m making is that nobody does no harm. The idea is to keep the damage within acceptable bounds.

But how many financial advisors are doing right — really right — by their clients, even given the considerable leeway that we all deserve? I suspect not many and I suspect part of the reason is that few have ever bothered to look at where the lines lie in any systematic way.

You have a cover-your-butt compliance plan, but where is your Deliver Trust plan? See: The SEC will often 'tell’ advisors what compliance issues deserve attention.

Intangible deliverables

Doing right is just something we think we do naturally. Or not. I bring this all up in the RIA context because the talk about registered investment advisors’ fulfilling their destiny of becoming the first true class of advisory professionals — and reaping the associated financial returns — is not really discussed in these terms. See: The 10 biggest threats to the RIA business heading into 2014.

So much of our discussion centers on the X’s and O’s of expanding a business and eking out efficiencies to survive in world of stiffening competition. Yet although efficiency is important in terms of staying power and keeping costs reasonable and the deliverables that come from it, no client ever walked in the door saying they were looking for efficiency, per se. See: Look before you leap: Six questions you must consider before becoming a multifamily office.

Clients want trust that goes beyond deliverables (let’s lose that word from the RIA lexicon).

So why do advisors spend about 30 seconds annually thinking about what trust looks like — or how it can be put into vivid, understandable words? Why have I spent so little time writing about it? See: What is the value proposition of a financial advisor — and how is a budding RIA culture upping the ante?.

Eight for 2014

I hereby resolve to spend more of my time in 2014 thinking on this neglected but all-important topic. Here are eight good jumping off points for discussion.

1. Proactively communicate at the worst times

When a patient’s life hangs in the balance after a heart attack or a gunshot wound, the loved ones who gather in the waiting room at the hospital want only one thing: news. Good or bad, people want to know what the hell is going on from the most qualified, most accountable person available. The most technically proficient doctor in the world who fails to respond to this need is not somebody who you would trust for long. Ditto the accountant who failed to report back on his meeting with the IRS on your behalf or the lawyer who declines to brief you on his reading on a life savings-threatening lawsuit he has evaluated. When the markets crumble — or particular holdings in a client’s portfolio take it on the chin — investors become the medical equivalent of desperate-for-word loved ones in the waiting room. Too often advisors conveniently keep to an annual-checkup mindset in an ICU circumstance. Too bad that all too often advisory “patients” go into cardiac arrest on a correlated basis. That’s the nature often of the advisory beast. They need phone calls and caring. This is a critical part of commanding and keeping trust. See: How to avoid that fatal blow to client communication.

2. Lose the robotic words and phrases

For most investors, the financial markets and how their investments interact with them is a cacophony of the highest dissonance. Translating all that noise into technocratic language associated with prospectuses, PowerPoint slides or inter-office memos defeats the whole purpose of communicating at all — and undermines trust. You don’t want to hear about platelets and thrombosis. You want to know if your loved one’s heart is still ticking. See: We’re better than this: The 10 words and expressions that should be expunged from the RIA business.

3. Earn trust by trusting your client to handle the truth

I recall my mentor from my days as a business broker warning me to trust least the ones who don’t trust you. “They don’t trust you because they presume you’re like them and they know that they can’t be trusted,” he said. Advisors should not distrust their clients to deal with information relating to fees, performance and the other pebbles in the shoes of investing. See: Fidelity loses some RIA assets over its new DFA/Vanguard fees but other RIAs crunch the numbers and soldier on. We all tell white lies and shade truths and there’s probably a need for that. But advisors need to err on the side of giving clients the unvarnished truth. It takes more work, more time, more energy and more discomfort to be a truth-teller. It is how you are going to build a practice that lasts and that makes looking in the mirror a pleasant experience each morning (and no, your hair doesn’t look gray).

Few of us are born with a Hippocratic oath as a part of who we are.
Few of us are born with
a Hippocratic oath as a part
of who we are.

4. Don’t give in to clients’ unproductive emotions

It’s almost impossible for divorced parents to make their kids eat spinach and read books when there are pizza and video games to be had. Kids have them over a barrel for choosing the wrong mate and they know it — and they know how to make them pay. Financial advisors are not divorced parents. When a client is begging to go to cash out on a bloodbath on Wall Street or pleading with you to take a big position in a skyrocketing Twitter stock or neglecting to take full advantage of a matching 401(k) plan, it is time for an advisor to be an advisor and not an enabler. Giving in to a client in a moment of weakness will not inspire trust once the client has regained equilibrium. See: Mark Matson: Stand up to clients or else.

5. Keep your nose clean off the clock

If you personally go into debt, get grandiose ideas about polygamy and high living or develop a taste for drunken online gambling, you may find yourself impinging on the well-being of clients. Even if the effects never reach anything approaching the Madoff level, you are not a professional. If you want or need to sow wild oats, get a job as a New York Jets quarterback, rock star or Eat, Love-r and Pray-er. We keep hearing about how the average advisor is 55 years old. Every time I hear that, Madoff aside, I’m relieved.,

6. Don’t partner with, or outsource to, people or companies with conveniently looser standards than your own

By choosing partners that will do the dirty work of slurring the truth on fees and poor performance, you are outsourcing expeditiously unscrupulous behavior. Clients may never cut through all the layers to catch you out on this fast behavior. But what clients lack in technical expertise, they make up for with their noses. Most people can smell a rat. See: An X-ray of one affluent, educated and sophisticated investor’s portfolio shows how it was chewed up by fees.

7. Do your homework

The RIA business has very few checks and balances. There are few educational or professional hoops to jump through before you can put out a shingle, at least in theory. The SEC comes knocking twice a lifetime. This is not necessarily a problem but it places a higher demand on the need for trust. I can think of plenty of brands I trust where the people I see don’t have many fancy degrees. But they do have good training and operate in a culture of trust. They can install a furnace without blowing up my house or prepare food without making me sick. The key is that they prepare themselves, know their limits and make it clear to me where the lines are drawn. A full wealth management program may be beyond the abilities of any advisor on the planet. Be sure to be good at what you’re promising to be good at and know enough to effectively outsource the rest. This is a cornerstone of a trusting relationship. See: How the breakaway movement is driving the outsourcing trend.

8. Don’t ruin a trusting relationship by using 'trust’ in conversation

We have all seen the scene in the movie where some sleaze monster says to some visibly frightened being: “You know you can trust me, right.” A chill goes down your spine as the action plays out. It’s not different than when some hustler precedes sentences with: “To be perfectly honest with you.” To gain and maintain client trust, be trustworthy. A bunch of talk about how trustworthy you and your firm are is a good way to bungle all the hard work. I see this from RIAs all the time when they say things like: “We’re a client-centric firm that puts the investor first,” or words to that effect. I feel like facetiously saying: Gee, now that’s setting a high bar. Good luck with those lofty principles.

Share your thoughts and opinions with the author or other readers.


Fiduciary Advisor Advocate said:

January 6, 2014 — 1:37 PM UTC

Very well said Brooke and could not agree with you more. A couple of thoughts for whatever they are worth:

Realizing your site is called RIABIZ, I often wonder why more articles aren’t about what is right for the client. It seems to me, and this is one man’s opinion, that the bulk of articles are about the business of being an advisor/ consultant and not the underlying client. Reading about grandiose claims of assets/advisors on platforms or how one tweets their way to a new Bentley is entertaining but does little to help advisors serve their clients.

Trust is an empty aspiration without some form of verification. I believe Ronald Reagan said something along those lines. Verification has to do with documentation and disclosure. Now I am sure that there are many advisors or consultants 'doing the right thing’. But I am equally sure there are way too many which are not, way too many which do not want to document and disclosure for fear their perceived value proposition to the client goes up in smoke. Or, perhaps, there are advisor 'wanting to do the right thing’ but lack the resources or capabilities. In any case, I would love to read more about how advisors can really align interests and provide client clarity. That would be a service.

Finally, your point about education is a very good one. Education by itself is quite helpful but actionable education is much more powerful. Believe it or not I have a college diploma (no idea where it is at the moment) which demonstrates I spent some money and survived an educational process. But until I put that education to work in a consistent, actionable form- it doesn’t mean as much. I would agree that clients '...don’t want to hear about platelets and thrombosis’- but they do expect the advisor/ consultant to be up to speed on the research and apply it in a meaningful manner.

Great job Brooke- enjoy reading RIABIZ!


Gregg Robins said:

January 6, 2014 — 8:14 PM UTC

I really enjoyed and appreciated this piece, Brooke. Nice to see such straight, sensible talk. Guess it all boils down to the basic idea of “do onto others as you would want others to do to you.” Many of your suggested principles follow. I especially liked the efficiency comment. The fact is that people will always pay for value and do understand that unless their advisor can earn a living they will not be motivated to do the best they can do.

The “trust” comment is also spot on. I remember when I was in NY in the post Enron period when money managers and wealth managers were falling over themselves to use trust in every conceivable way, to the point where I imagine most people grew numb from the ads and other materials…

Just wanted you to know this piece is appreciated over in Switzerland, and I will share it accordingly… Thanks!


Brooke Southall said:

January 6, 2014 — 8:37 PM UTC

Hi Gregg and Fiduciary Advisor Advocate,

Thank you both — a few of you who sent notes directly to my email or Twitter. It’ll encourage me to tackle my next chapter in this vein. I have one in mind.



Jeff McClure said:

January 7, 2014 — 10:00 PM UTC

Well said Brooke.

The essence of professionalism is transparency and truth. Unfortunately I have listened to far too many dually registered reps discuss their RIA activities as if they were a new marketing plan. Others, even the “fee-only” independents are proud to claim at industry conferences that they are effectively selling the services of corporate money managers and in doing so making more money than they did as brokers. Building up a fee-stream for the purpose of selling an RIA business seems to be another high-level motivation.

The concept of striving to do what is legitimately best for our clients is what we all should be pursuing. Sadly, finding a standard for that ideal seems to become harder with each passing year.

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