Investment Advisor Interests   04/26/2022

How Financial Advisors Can Deal With Difficult Clients

By Jon Talamas

How Financial Advisors Can Deal With Difficult Clients

Any profession that involves working with people requires a keen understanding and acceptance of an overused but valid principle: you can’t satisfy everyone. Regardless of your knowledge, skills and communication prowess, you’re likely to run into more than a few problematic clients. As Financial Advisors, this is an even higher probability because money can be both an emotional and mysterious concept.

Creating strategies for working with difficult clients first requires examining what makes a client difficult. The four most common factors that can lead to complicated client relationships are:

Lack of financial education. Clients who don’t understand the philosophy of your financial recommendations are challenging because they can’t fully endorse and accept your suggestions. It’s virtually impossible to impart all of your knowledge and expertise during client meetings. Clients who don’t understand or remember the reasons for various product recommendations often change their minds or delay their decision to get started, which costs you valuable time. Or, five years down the line, they become very upset about an investment you’ve recommended based on their low tolerance for risk, and they threaten to sue you because their colleague’s investment is returning two points better. They likely don’t realize that their investments conservatively appreciated each year over the past five years, compared to their friends’ investments that grew higher this year but declined the first two years they invested.

Withholding all their motivations. Sometimes clients fail to expose all of the things that lead them to make financial decisions. They may have fully shared their financial picture, giving you every detail of their income, expenses, debts, current investments and other financial data. But they didn’t tell you that they have a married daughter who is on the brink of a costly divorce that will require them to supplement income for her and the grandchildren. Or they didn’t disclose that a beneficiary is battling addiction, and they begin changing the patterns of their retirement distribution with no explanation. As you watch them drain their retirement account, you can’t properly advise them on how to help their family and protect their financial future because they won’t explain why they are pulling out more money than the original plan.

Unrealistic expectations. Financial Advisors often cite examples of complicated client relationships that point to unattainable goals or unrealistic expectations. Advisors at e3 Wealth suggest unrealistic expectations are often a result of the “cocktail syndrome.” Cocktail parties are great for friends sharing bits and pieces about their investments and returns, but rarely are all the facts and risk tolerances fully discussed over martinis. There’s a lot of information out there, but not a lot of wisdom. You can quickly find yourself on the defensive when a client has seen an ad for a specific product or hears his friend talking about a 15% return and demands to know why they don’t see the same results.

Some people are just difficult by nature. We all know this, and like Mother Nature, you can’t change human nature. Some personalities are simply more demanding and unpleasant, causing stress to you and your staff. They might be rude or aggressive, unresponsive for weeks at a time and then demand immediate answers.

The most difficult client relationships are often challenging because of a combination of the factors mentioned above. Understanding what drives clients to be difficult allows you to create strategies to avoid unpleasant client conversations and relationships.

Tips for Dealing with Difficult Clients

Let’s start with two proactive ways to work with clients to prevent relationships from becoming difficult.

Thorough & Documented Client Intake Process. A thorough client intake process can ward off lots of issues that lead to challenging clients. When you meet a new client for the first time, you have an opportunity to set the tone for a positive working relationship built on open communication and mutual trust. There are five components to a thorough client intake process:

  1. Obtain a complete financial picture. This includes all of a client’s income, ongoing expenses, debt, investments, insurance policies and tax returns. Further, it allows you to examine how their money flows within their personal economy thoroughly.
  2. Gain an understanding of their financial purpose. In other words, what do they want their money to do for them now, in the immediate future and longer-term? This gently encourages your client to disclose the otherwise hidden motivations behind their financial decisions when done correctly.
  3. Ask probing questions to establish a good relationship and identify how they define success. Strategic Coach Co-Founder Dan Sullivan refers to this as the R Factor.* He recommends you ask the following R (relationship)-based questions during every first client meeting:

If we were sitting here three years from today, looking back on the last three years, what would have to happen in your life, both personally and professionally, to make you feel good about your progress?

What opportunities would you like to capture?

What concerns would you like to alleviate?

What strengths do you possess to eliminate these concerns and capture these opportunities?

These questions help you establish what’s important to your clients and provide the roadmap for how you engage with them and explain your future recommendations. You’ll want to refer back to their answers as you progress through the client relationship to make sure you’re still on track.

  1. Explain how you work and what they can expect. Let them know the timelines for gathering information and making recommendations. Provide resources to educate them on why you are making these specific proposals.
  2. Document, document, document. This is important throughout the life of your client relationship, but exceptionally so for the first few client encounters. After your client meeting, send a thoughtful recap of the meeting discussion, including the answers to your questions and a written explanation of anything you covered during the visit.

Each of these five components will minimize the risk of difficult client situations. Here are two very common examples that can be mitigated with a thorough and documented client intake process.

Client Forgot – Have you ever had a client call you a week after a meeting and say, “can you remind me of why we went with this mutual fund instead of that one?” Or another common scenario: “this made so much sense as we walked out of your office, but now we don’t remember everything you told us.” Both are symptoms of forgetfulness and a lack of financial education. Often, it takes time for clients to grasp the rationale behind your recommendations fully. If you’ve sent them a detailed account of your first meeting, it’s much easier to answer their question because you can politely remind them of things they’ve already heard and possibly read. Refer to the follow-up you sent to reinforce the collaboration and agreement obtained during the meeting. By now, they’ve heard or seen this information several times, which may alleviate any confusion in the future. But just as importantly, it might serve you well if the client has additional questions that can lead to a better recommendation.

Client Loses Focus – A very similar scenario to the client forgetting, but in this case, not only have they forgotten the “why” of their financial plan, but they’ve also re-directed their focus leading to behaviors that go against the financial plan. For example, based on your initial meeting, one of your recommendations was to move away from automobile leases and instead use auto loans to make more of their money available month to month. But they forget this strategy and decide to take on two new car leases that increase their monthly expenses while diminishing their asset list. There’s nothing you can do to force clients to follow your advice. Still, you have a better chance of them understanding it and heeding it if you’ve provided resources to explain and educate how they can control more of their money or protect what they’ve accumulated. Additionally, if you’ve asked the R factor questions recommended by Sullivan, you can use the documentation from that particular meeting to nudge them back on track.

Good documentation of a thorough client intake meeting helps you reinforce the value of your financial advice and recommendations throughout the length of your client relationship. The process should be repeated frequently throughout the relationship. People mature, and their lives change, such as getting married, retiring, or experiencing a death in the family—all are things that can change their financial picture and short- and long-term goals. Be present and stay on top of their situations. And always document every client interaction. It’s hard for clients to complain and become problematic if you’ve provided a solid financial recommendation based on what is most important to them.

Educating Clients

For many, money is a mysterious topic. Even the most educated, professional clients may not fully understand how various mutual funds and investment strategies work. Don’t rely on them to remember or fully grasp everything you tried to educate them on in the beginning. You should consider it as much of an educational resource as a proposal whenever you send a recommendation. Your proposal should include the following content:

  • Restate their financial goals, including their desired level of risk
  • Explain thoroughly how the recommended strategies work and how they accomplish their specific financial goals
  • Provide the pros and cons of the recommendations
  • Provide educational resources for each of the recommended products as a reference for future discussions
  • Disclose the fees associated with executing your recommendations
  • Identify how you’ll track, analyze and modify the plan as you move forward
  • Any disclaimers your broker-dealer may require

Ongoing education is the best defense against the “cocktail syndrome,” even though you can’t completely eliminate the potential for the Monday morning call following a great party. But without the documentation and ongoing resources you’ve provided along the way, you’re not likely to eliminate the newly formed doubts that arise when a client consumes too much information but lacks the wisdom to know what applies to their specific financial circumstances.

A thorough client intake process and ongoing client education are very helpful in preventing difficult client situations resulting from lack of financial education, withholding all relevant motivations and unrealistic expectations. But what about the challenges that come with difficult personalities?

Difficult Personalities

Here are some tried and true tips for dealing with unreasonable clients during difficult conversations:

  • Start by acknowledging their viewpoint. It may go against your natural tendency to discredit their claim or attempt to calm them, but it’s the best way to begin. Keep in mind that underneath the disrespectful or demanding style often lies fear. The most difficult personalities react negatively when they’re worried about their financial future. Instead of reacting, try to listen with the intent to understand, as opposed to listening so you can respond. Empathy can many times win the trust of a fearful personality.
  • Thank them for reaching out to you. Reinforce their right as a valued client to express their concerns and frustrations before you attempt to explain or address their complaints. 
  • Try to lean into their viewpoint so you can connect. “I can understand why you have these concerns. Let’s see if I can help you address them.” Keep in mind that for some clients, they may need to repeat their concerns multiple times. It’s important to allow them to do that until you can find the moment where they’re ready to receive your help.
  • Formulate why they may be so angry so you can better relate to their concerns. Forget that you may have explained a particular financial issue or result numerous times. Instead, remember they don’t have the same level of knowledge or confidence and help them work through the driving force of their fear. The best way to do this is to ask questions. Have you read something new that has you concerned? Are you concerned about the fluctuations that differ from the past? Has something new happened that’s changed your goals? The more you can approach their concerns with curiosity, the more likely you can address them.
  • Be clear about what you can do to help them. And be clear if you can’t. This is where things can improve or take a turn for the worst. Some people just want to be heard and know going into the conversation that whatever has upset them can’t be solved immediately. Others may be demanding unrealistic outcomes. 

Your ability to effectively use these techniques relies heavily on the amount of time you’ve worked with the client. It takes time to truly understand people and what drives them. Good communication is expensive and time-consuming. And success relies on focus and sometimes the fate of the financial ecosystem in which you are operating. Research has shown that when people make money they are happy and less likely to complain. But when they lose money, the downside is much greater and their satisfaction drops more than it rose during prosperity.

Protect Yourself

Sometimes there’s nothing a Financial Advisor can do to please a difficult client. Whether you’ve made a mistake by not fully disclosing important information or you’re unable to satisfy a difficult client, you face the risk of lawsuits.

In today’s world, it’s best to protect yourself with Errors and Omissions (E&O) Insurance. E&O insurance is a contract between you and an insurance company in which the insurer agrees to pay for your professional liability claim costs in return for you paying a premium. If you harm a client and get sued for damages, the insurer will cover your attorney fees and legal judgments or settlements, shielding your business and personal assets.

Based on the policy’s insuring clause, the insurer will:

  • Provide you with an approved defense attorney at no cost to you.
  • Assign a claims adjuster to investigate your case and manage the process of resolving the claim.
  • Pay for your legal fees and court expenses related to your case.
  • Provide an expert witness to bolster your legal defense.
  • Cover arbitration, mediation or other alternative dispute resolution services.

360 Coverage Pros offers a professional liability insurance program that understands your risks as a registered investment advisor. Our Professional Liability Insurance features an easy online application that lets you click and bind your coverage to receive instant proof of insurance. To learn more, visit our website.