There is an anecdote that is sometimes shared about the investment industry. I have no idea whether or not this particular conversation ever took place, but it represents an important idea about the priority of client success.

Once there was a journalist visiting Wall Street. She was speaking with some of the top leadership of a renowned investment bank. They gave the journalist a tour of their offices, then had lunch in a fancy restaurant, and finished the tour in the harbour, where they showed off their yachts. The journalist, suitably impressed, asked: “Where are the clients’ yachts?” There was no answer.

This anecdote, true or not, highlights the adversarial nature of the working relationship between salespeople and their clients. This was again highlighted this week in an editorial in the New York Times by a former director at Goldman Sachs. He charges that the culture of integrity and the priority of client success are eroding. The focus of the firm, in his perception, has shifted to making the most money possible, often at the expense of clients, rather than profiting by ensuring clients profit first. The result, he predicts, will be a loss of trust and a loss of clients, something that his editorial has (ironically) probably helped to precipitate.

I worked for seven years giving financial advice. I am proud to say that in our office, the needs and success of clients almost universally trumped other concerns. (We’re all human, so I’m sure we made an occasional mistake, but I can’t think of examples.) Unfortunately, I was told that our office was relatively rare. I believe that’s true, based on advertising I’ve seen from other financial salespeople, pushing strategies of questionable value, but highly lucrative in commissions. (The example I have in mind is borrowing money against your home to invest in mutual funds.) Clients ask for advice specifically because the advisor has more understanding, so how can they avoid being treated as “muppets”?

First, understand how your advisor benefits. Most financial advisors are salespeople, compensated by the products they sell. It’s relatively rare for a client to pay directly for advice (or a financial plan) and to pay nothing additional for the products used for implementation. Understand how your advisor is paid. If they charge your account nothing directly, they are probably paid through the products they sell and are vulnerable to influence by the amount or timing of payment through the product. If the advisor charges a flat fee or a performance-based fee to your account, regardless of which products you own, this increases the likelihood that they will only profit if the client profits first.

Second, understand what success means to you. If success means “keeping my money safe,” that leads to a very different strategy than if success means “making profit as much and as quickly as possible.” Your advisor’s strategy might be to profit as much as possible from his relationship with you, which may fit with the second definition of success, but may conflict with the first definition. Understanding your own definition of success will help you to choose an advisor whose skills and preferences align with your needs. It will also allow you to know that the working relationship is healthy, by always looking for the answer to: “How does this advice/action/strategy help me to achieve success?”

In my experience, many clients were unclear about what defined success. Trying to help them achieve success was like trying to hit a moving target. When markets were good, they weren’t making money quick enough. When markets were bad, their money wasn’t safe enough. And when it was nearing time to retire, they hadn’t paid off debt quickly enough. Knowing what success means to you, and ensuring that each decision brings you closer, is the best way to ensure you profit from your relationship with an advisor.

Client Success

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