As the controversy surrounding the DOL Fiduciary rule swirled this year, Wall Street was made out by regulators to be a predatory monolithic entity that was lurking and waiting to pounce on poor, unsuspecting, na´ve clients, cheating them out of their hard-earned retirement savings with high commissions. However, if you drive down the I95 South Florida corridor, there are multiple billboards for attorneys who promise that they can recover clients' stock market losses. Take a few seconds and Google “losses in the stock market” and watch the attorney websites roll down your page. There is an established industry that attempts to convince clients that all stock market losses are recoverable via legal action. And since every mere accusation will appear forever on an adviser's BrokerCheck record, it makes sense that advisers should take every precaution to avoid a litigious client.
In a perfect world, there would be a “ClientCheck” database by which an adviser could examine how many advisers a given client or prospect has had in his or her adult life. It would be useful to know if a given prospect has a history of suing advisers in the past. Without these tools, however, a street-smart adviser has to rely on his or her gut and a repeatable process for discerning the trouble client from a merely high-maintenance one. Here are some ideas that could keep an ethical adviser away from an arbitration panel because of a bad client.
A 25-plus year Merrill Lynch veteran told me that he reserved the right to reject “jerks.” “At various times in my career, at a certain level of assets and revenue, I would accept a client whose personality that I didn't click with or whom I thought would be difficult,” the Merrill Lynch veteran said. “At this point of my career, there is no level that will make me put up with that.”
Jim Gold, CEO of Steward Partners, told me that when he was a trainee and later a branch manager, advisers spoke openly of what he termed the “grief-to-gross ratio.” “Young advisers do not have the maturity or the financial security to walk away from a big account even if the client is difficult,” Mr. Gold said. “That ratio of what you will put up with changes with success.”
Joni Youngwirth, managing principal of practice management for Commonwealth Financial Network, agreed that advisers needed to follow their gut when it comes to prospects. She said that advisers should not work with clients who are “rude, don't follow your advice or who are 100% focused on performance.”
Indeed, the Merrill Lynch veteran has specific questions that screen out about 20% of the prospects that he meets. He asks them what their expectations are of returns and also asks about their spending habits. If those are out of sync with the size of the portfolio, then the client will be trouble. Finally, he asks prospects who have been investing on their own how long they typically hold a stock. Too short a time frame is a deal killer for him.
Tony Barrett, the complex manager for Raymond James & Associates in Philadelphia, thinks that meeting prospects is just like dating. “I don't want to date someone who is rude to servers in a restaurant,” Mr. Barrett said. “Similarly, prospects that are rude to servers will be rude to my customer service and branch support people.” And just as everyone brings their own “baggage” to a dating relationship, prospects bring their own baggage — their bad experiences with former advisers — to a new adviser relationship: “I want to know why they are considering leaving their former adviser,” he said.
Of course, there are unfortunately too many advisers who view their clients' assets as a cash register and not a responsibility. But in today's regulatory environment, every adviser is guilty until proven innocent. And even an innocent adviser can have a settlement forced upon him, or a mere accusation that will always show up on her public record. Unfortunately, this transparency is only one-way. Bad clients and their plaintiff attorneys are looking to take advantage of a system skewed in their favor. Adviser beware.
Danny Sarch is the founder and owner of Leitner Sarch Consultants, a wealth management recruiting firm based in White Plains, N.Y.