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Keep Your Principles, Even if You Lose the Client

April 14, 2017

This time we hear from Michael McLaughlin, a Wilmington, Del.-based financial advisor with Capital One Investing. He stresses the importance of establishing clear client expectations early on.

One of the most important things an advisor can do is slow their clients down. Sometimes clients want to jump right into market recommendations and make instant decisions about where to put their money. They are so focused on immediate returns that they can’t focus on long-term goals. Sometimes they even refuse to focus on those goals. This is rare, and it may never happen to you. But if it does, you may need to let that prospect go.

This lesson came home to me several years ago when I had just such a client. He began by asking me over and over about recommendations for how to invest his money to maximize short-term returns. That was his focus and it didn’t change.

I tried to get him to put those questions aside and instead consider his long-term goals: when he wanted to retire, how he wanted to spend his time in retirement and whether he had other financial goals in mind, such as school tuition, travel, charities or beneficiaries. But he didn’t take those conversations seriously.

We went back and forth like this for the first couple of years. Finally I realized that even if he let me develop a long-term plan, he probably wouldn’t take it seriously. He wouldn’t own it. He would just let me go through the motions of long-term planning while he kept pushing me on short-term gains.

At that point, I decided it was best for both of us if we parted ways. That was hard to do. Nobody likes to lose a client. But in this case I realized I wasn’t doing him — or me — any favors by hanging on to his business. Our relationship would only grow more frustrating for both of us.

After that experience I developed a basic plan I follow with every new client. I have found that if I stick to this plan I develop strong client relationships that last for many years. First off, I never lead with recommendations; rather, I lead with a plan that centers on the client’s investment goals and risk tolerance as well as their goals for the future. Then, after defining those goals we develop a plan to achieve them.

Michael McLaughlin

This process encourages clients to be goal-driven and not performance-driven. It also reminds them that sometimes those long-term goals do not align with short-term performance.

This lesson came home for a number of my clients after the financial crisis of 2008-2009. Several of my clients actually thanked me for the amount of money they lost over that time. They understood that without our plan — and without my encouragement helping them stick to that plan — they would have lost a whole lot more. I remind my clients that having a solid financial plan does not just mean you are benefitting from upside potential, but you are also protecting yourself against downside risk. Over time, staying committed to such a plan will pay off.

Through this new-client process I can figure out pretty quickly whether a prospect is not willing to take the time to develop a forward-looking plan that accounts for all their future financial needs.

If I get a sense they’re not willing to develop or stick to a plan we come up with, then I know I need to consider separating from that client. This does not happen often. But I think it’s important for advisors to remember to stick to their principles — planning over performance. If you do, you will have long-run success with your clients.