Every advisor can tell a few war stories. Like the one about a client who came into the office demanding you follow the market timing style of a fringe radio personality. Or another who called you names because you refused to chase performance. Or the ones who lied about their finances and second-guessed your every decision.
Clients from hell are a much larger problem these days than they were a decade ago, says planner Katherine Vessenes of Shorewood, Minn. "Clients are more nervous and upset - and they are also more likely to sue," says Vessenes, who runs a planning practice, Vestment Financial, and is president of Vestment Advisors, a consulting firm to financial services companies.
WHAT TO LOOK FOR
If she's right, what is the best way to identify a client from hell - before it's too late? The list of characteristics can seem endless, depending on your personal likes and dislikes. But Bayard "Bud" Bigelow III, CEO of Markel Cambridge Alliance in Burlington, Vt., which offers errors and omissions insurance to investment advisors, has assembled a comprehensive list:
* They chronically overspend. "People who win the lottery frequently fall into this category," Bigelow says. "They win $100 million, go on a binge, buy everything and end up bankrupt two years later."
* They won't accept any prudent financial advice.
* Risk management is inconsistent with their life circumstances. "These are people who get a 'buzz' out of risk," he explains.
* They claim they know how to "beat the system."
* They are in conflict with their partners - marital partners, business partners or significant others.
* They are abusive to others. "You can identify these people quite early on, because they are the ones who are constantly giving your front-office staff a really hard time," Bigelow says.
* They are undisciplined and quite disorganized.
* They are high maintenance, low return and are overly afraid of investment losses. "They call every time the market goes down three cents and complain every time they lose a dollar," he says.
* They have sued other professionals, although this isn't necessarily a deal breaker, according to Bigelow. But you do need to get all the details.
* Their behavior is unethical or immoral. "This might be hard to put your finger on," Bigelow says. "You may just talk with the person and sense that something isn't right. You can't figure it out, but you know it will come back to haunt you."
HEAVEN AND HELL
The best solution is to weed out clients from hell before taking them on, Vessenes says. When she meets with potential clients, the first question she asks is what they expect from her as their financial advisor. "I take detailed notes," she says.
One red flag: When the level of service that prospects want is far beyond what your firm can deliver. For example, some potential clients have told Vessenes they expect phone calls three or four times a week, or every time the market is headed in a different direction.
Another red flag: "Someone who has jumped around from two or three other advisors," she says. Investors with multiple planners often have outsize expectations that are difficult to meet.
Vessenes also cautions novice financial planners who may be a bit eager to load up on clients: "If you're new, you may be desperate and want to take on every client you can," she explains. "This can be a mistake, because it may come back to bite you later."
When she considers new clients, she asks herself if she would invite them to her home for a barbeque. "If not, I may take a pass."
HEAVENLY CLIENTS
While financial planners should be working to shun potential clients from hell, they should also strive to attract the more "celestial" ones. Karl O. Mills, president of Jurika Mills & Keifer in San Francisco, is a value-oriented professional who focuses on fundamentals. To him, the client from heaven is one who says, "I trust you to manage my money. I want you to protect me on the downside, but I also want you to find opportunities on the upside."
Maria Marsala, president of Elevating Your Business, a consulting firm in Poulsbo, Wash., recommends that the first thing her planner clients do is to create an ideal client profile. "That way, you can catch clients from hell before you take them on," she says.
Marsala has planners list all of the attributes past clients from hell have had. Then they describe the opposite of each of those attributes. For example, if you write, "They don't pay me on time," also write, "They pay me before the bill gets sent out." After discarding the list of negatives, "You will have the ideal client profile," she says.
When meeting prospects, "Come up with questions to ask them based on your list, which will help you determine if they will be ideal clients," Marsala suggests. "If you are talking with someone who would not be an ideal client, move on to someone else."
Of course, different planners might have radically different definitions of a client from hell. For example, one of Marsala's clients has a profile of the ideal client as someone who is inquisitive.
"She enjoys having conversations with these people," the consultant says. "She loves it when they call her up with new information on a stock or a bond, or to ask her a question about an investment. I have other clients who would call this type of person a client from hell."
PROTECTING YOURSELF
If you do have one or more clients from hell, getting rid of them may not be easy. Before you even consider doing so, it's important to take steps to protect yourself from any potential legal liability.
David Markun, a securities litigation partner at Markun Zusman & Compton in Pacific Palisades, Calif., offers steps financial planners can take to protect themselves from being served with a lawsuit. These steps are particularly important if a planner is thinking about firing a client from hell:
* Get to know the client as well as possible, so you can make the most appropriate recommendations. "They have to do more than fill out a short form on their goals," Markun says.
* Have comprehensive knowledge of the products you are recommending to the client.
* Don't make exaggerated assurances, guarantees or predictions about performance.
* Always ask yourself if what you plan to do is in your client's best interest. If not, don't do it.
* Maintain adequate documentation. Keep a comprehensive profile written by clients. Also, provide a prospectus to the client on each product you are recommending, and create and maintain documentation that you have disclosed risk factors. In addition, take notes on all conversations between you and the client.
* If the markets tank, don't put your head in the sand out of fear. "Failing to communicate with clients can create resentment at a difficult time," Markun says. "You want to emphasize that you are standing by their side throughout the crisis. Explain what has happened to the market and to their portfolios. Then provide different options."
* Be sure you have the proper errors and omissions policy. Take the time to understand it, so you know what's covered. "You may balk at the premiums," Markun admits. "However, all you need is one lawsuit to destroy your life. Financial planners can end up spending $100,000 or $200,000 of their own money defending themselves. And they might lose."
* Always remember that you might be sued. "It will put the fear of God into you," Markun says.
KEEPING THEM
Before sending bad clients packing, consider that keeping them may not be a bad idea in certain circumstances. "It may make sense to learn to live with some clients from hell," Bigelow says. "If you are too selective, you may find you don't have any clients at all."
For example, if you have a client who is demanding a lot of extra services or attention, explain to him or her that you will need to renegotiate your fee to make the relationship work. "Then, quote the client a fee that really does cover your costs," Vessenes suggests.
"The client may leave. If so, fine. However, the client may be willing to pay the fee. If you have the client from hell, keep raising that client's fees until you fall in love with him or her."
Mark Rosen, a former business consultant who now specializes in organizational behavior at Brandeis University, believes that before deciding whether to part ways with a client, it's crucial to define the term properly. He sees two types: difficult clients and dangerous clients. "The dangerous client can cause you material, physical or legal harm," says Rosen, author of Thank You For Being Such a Pain, which gives insights into understanding and negotiating interpersonal conflict.
"What pushes your buttons is a very personal thing," Rosen says, adding that everyone describes a difficult client differently. As such, one way to deal with a difficult client may be to deal with your own reaction, rather than looking for strategies to deal with the client.
"Your emotional reaction is really what the problem is," he says. He recommends asking yourself, "What is it about this person that makes me so uncomfortable? Why?"
If you can't resolve the situation, consider trying to pass a difficult client on to someone else. Rosen remembers one situation where two financial planners were working in adjacent offices. One had a client he couldn't stand. He asked his colleague to take on the client, and the other advisor found the client to be quite easy to work with. In bigger firms, moving the client to another advisor might be the right answer.
PARTING WAYS
If you have a client from hell through no fault of your own, and you have taken steps to protect yourself legally, it may be productive to discuss the problem with the client. When meeting with him or her, Vessenes opens by saying, "I have a sense that we are not meeting your expectations." Then she stops talking and listens.
When the client responds, she listens and takes notes about why the client is unhappy. Then she replies, "I don't think we are set up to meet your needs." Vessenes offers to refer such clients to another advisor who might be a better fit.
"And I actually do try to send the client to someone who is a better fit," she says. "For example, I don't do well with engineers, but I know some other advisors who love working with them."
William Atkinson is a business and financial writer in Carterville, Ill.
