Welcome to Financial Advisor IQ

When Clients Get Out of Line, It Can Pay to Push Back

October 10, 2014

This week FA-IQ interviewed Dan Danford, founder and CEO of Family Investment Center, a full-service advisory firm in St. Joseph, Mo. Danford recalls how he learned the benefit of respectfully disagreeing with an angry client.

In 2005, my practice began managing two IRA accounts totaling around $500,000 for a client. A few years later, he asked if we’d also manage a taxable investment account for him. We discussed his goals and risk tolerance, and agreed to take the job. He put $100,000 in the account. I invested it the way we usually do, in low-cost mutual funds. Everything was going according to plan. Then, a few months later, the markets crashed.

The client came into the office one day when I was out of town. He was visibly upset and wanted to talk to someone about the performance of his investment account. Because I wasn’t around, he spoke to one of my associates. The client let us know he was very disappointed — ignoring the fact that the entire country was going into recession and everyone’s investments were taking a hit. He left the office and informed me in a voice mail that he was pulling all the money out of the account.

When I heard that voice mail, I was saddened and frustrated. Of course I sympathized with the client’s panic at the market downturn, but I didn’t appreciate that he didn’t even have a face-to-face conversation with me before closing out the account. I also didn’t appreciate having the money pulled out after just one year; it made me feel as though my performance was being evaluated using unfair criteria.

As advisors, we’re schooled to think the customer is always right and we’re always supposed to defer to the client. Had this been a smaller account, I might have let it slide. But I liked and respected this client, and I wanted to maintain the relationship. And I knew I couldn’t do that without acknowledging my discomfort at how he’d handled this situation. So I sat down and wrote him a letter.

I reminded him our time horizon for the investment account was much longer than just 12 months. I explained that one year — especially a recession year — is not a good measure of a portfolio’s success, because too much is out of our control. Of course, I also thanked him for his business and apologized for any misunderstandings there may have been on my part.

I knew writing the letter was something of a risky move. I was essentially telling the client I thought he was wrong, even though I used cordial language. Although the client never replied to that letter, he kept his IRA accounts with us — so I assumed he wasn’t too angry. But I have to admit, I was surprised to hear from him around four years later. He wanted to open another taxable account — with $1 million. He never mentioned my letter, but he seemed to have taken its message to heart. I also feel as though he’s treating me and my team slightly differently this time around. He has more respect for us and for what we do, I think.

For me, the lesson here is that while it’s important to run a client-centered practice, sometimes your clients are best served when you are willing to stand up to them a little bit. If you’ve made a mistake, of course you should apologize for it. But if the client is trying to hold you to an unfair standard, it’s okay to rationally, respectfully point that out. This client came back. Plenty of others are too proud to do so, even if they do realize they’ve made a mistake. But you can at least hope they’ll treat the next advisor with more consideration.