In his latest article for AdviserVoice, Ray Griffin discusses how certain words can create unrealistic expectations for clients that can only end in disappointment. Ray steps you through the danger zones with some suggestions on how to more carefully set your clients’ expectations.
Promises promises!
A website can make pretty much anything look good. We’ve all been there – buying or booking something via a website only to find out later that the item in question is not exactly as it was portrayed on the website. If it’s of insignificant value it’s easy to look beyond the disappointment however it’s often another matter if the money spent begins to mount up.
I was reminded of this when recently booking some accommodation the owners of which, according to the website, paid very close attention to the finer details of the small house I was renting for just a few nights. It was with substantial surprise then that I found the house to be far less detailed than the website led me to believe. The refrigerator was filthy; the heater in the bathroom was circa 1970 and didn’t work; the ‘polished floorboards’ were actually linoleum and – you get my drift.
The so-called ‘buyer’s remorse’ emerged for me but only partially. After all, I hadn’t handed over my life savings to the landlord. However, this example gets to the very nub of expectations and delivery. My expectations had been set at a reasonably high level due only to the information on the website – it was all there in writing.
So too is it all there in writing on financial advisers websites and it is also there in writing in Statements of Advice and related documents. In the late 1990s I marked many Diploma of Financial Planning (DFP) 8 assignments; DFP 8 was where students were required to develop a comprehensive financial plan based on a complex case study. It struck me how often I would mark assignments that contained written statements and claims with words to the effect of:
“By implementing your financial plan you will be sure to enjoy a worry free retirement.”
and
“We will ensure that your portfolio is comprised of the best performing investments…”
and
“Our projections illustrate that when you retire in fifteen years you will have accumulated $X of retirement capital.”
Can you see the expectations being created in the clients’ minds?
“…worry free retirement”
“…best performing investments”
“…will have accumulated…”
To be frank, some such comments were not too far removed from some of the infamous claims made by the so-called ‘snake oil salesmen’ of the 19th century who claimed certain medicines were cure-alls for everything from indigestion to tuberculosis.
The point is the planners in question were making promises – setting expectations in the clients’ minds – over which the planners had very limited control or no control at all. No financial adviser can guarantee such outcomes for clients.
Note that the assignment marking was in the late 1990s so now consider just some of the financial events that have unfolded since then. The 1998 South East Asian Currency Crisis; the 2000 dotcom bubble; the Iraq War which commenced in 2003 the lead up to which saw large sharemarket declines and of course, the Global Financial Crisis the effects of which just keep rolling on. What about the assurances given in those assignments? What about the promises financial advisers all over the world continue to make to their clients?
A Statement of Advice (financial plan) is just that – it’s a statement that an adviser is making. Used carefully it can help to set very realistic expectations for clients. Used to ‘sell’ advice that the client might want to hear it can be very dangerous for both the client and the adviser.
Dangerous for the client because such undisciplined statements can embed unrealistic expectations in their thinking. It heightens the potential for the client to experience ‘buyer’s remorse’ and for the adviser, it heightens the potential that they might end up in dispute with what could by then be a former client. Ultimately it could see the adviser being cross-examined in court.
A quick look around the Internet at sites of financial advice firms reveals that the practice of making questionable claims, about what can actually be delivered, continues to this day.
While it might be tempting to paint a rosy picture to potential clients via your website and/or SoA, the professional, disciplined, approach is to only make statements which will realistically set your clients’ expectations and which you are confident you can defend if required to.
While your calculations might be mathematically correct, for example, that might not count for much if a former client expected you to deliver a worry free retirement or expected to have a portfolio comprised only of the best performing investments – because you wrote that in their SoA. Such a client’s legal adviser might be very interested to view copies of SoAs and the like.
Consider the following as alternate statements for the above claims:
“ By implementing your financial plan you have taken another step toward enhancing your financial position in retirement.”
and
“We cannot promise you that your portfolio will always be comprised of the best performing investments; indeed we believe that such an outcome is impossible to achieve. Rather, in managing your portfolio, our aim will be to review the investments regularly, mindful of changes in the Australian and world economies and investment markets, and to then make suitable recommendations for change as the need arises.”
and
“The projections are an exercise in mathematics and to conduct them, as a means of having an insight into potential financial outcomes for you, we have used the assumptions which follow. However, please note that we cannot guarantee the forecast outcomes because they are dependent on future events such as interest rates, inflation, economic growth, actual investment returns and a host of other economic events and circumstances which are beyond our control.”
The point about statements like the above is that they are aimed at not setting clients’ expectations above what is realistically possible. No financial adviser can guarantee very much – they cannot guarantee where a portfolio will be in one year from now let alone twenty years and beyond. And no adviser can guarantee to have only the very best performing investments in just one portfolio, at all times, let alone promising the same to each and every client who engages the firm.
There is no guarantee that such words would protect an adviser in a litigation scenario after all, negligence is neglect and that isn’t confined to words. However, words such as these are more likely to keep your clients’ expectations grounded. None of us are ‘investment gurus’ – we’re planners who try to design and navigate a more secure path forward for clients in full knowledge that the future is uncertain.
The simple, professional, approach is to only promise what you can guarantee and if you cannot guarantee an outcome don’t promise it.
The only promise you should make is to yourself and that is to promise not to give false hope to people who are going to trust you with their financial security.
