You may remember that a couple of years ago, CBC aired an episode of its Marketplace TV show in which there were videotapes of meetings between “mystery shoppers” and advisors from several dealers. The videos were embarrassing, to say the least, and ensured the reputation of advisors would be damaged further as the videos portrayed these advisors to be incompetent and unprofessional, making outrageous misrepresentations in their first meetings with these prospective clients.

I watched the show when it was first aired and wondered whether they chose not to air any of the advisors who did a good job as this would not perpetuate the myth that you cannot trust advisors in the securities business because they are incompetent, at best, and liars, at worst.

Although most advisors consider the regulators to be the enemy, in this case they fought back. The Ontario Securities Commission (OSC) and the self-regulatory organizations did their own mystery shopper study and even though the results were not perfect, they were certainly much better and more balanced than the TV show.

The OSC’s report, Mystery Shopping for Investment Advice*, is almost 100 pages but the main takeaway is that it’s all about the first meeting. The challenge is that advisors are being judged on their first meeting with clients and, in fairness, the advisor is usually attempting to entice the client to hire him or her while cessing out who is a serious client and who is not before discussing details, such as cost to clients, that the regulator expects.

The regulators were critical of both inappropriate and incomplete statements that might serve to mislead the public in that first meeting. The regulator expects, especially with the implementation of the second phase of the client relationship model, that advisors be transparent about the fees they charge, even in the first meeting. Advisors might think it’s too early to explain the fees when you first meet the client. However, advisors should know that explaining the cost to clients is what all professionals do before they begin the relationship so that the client understands what he or she will be paying before making the commitment to becoming a client.

As a lawyer, when I first speak to a prospective client, I must first determine if I have the expertise that the potential client needs, and if I conclude I have that expertise, then I explain what it would cost to retain me. If the prospective client is agreeable to the charges, I put the terms, including the cost, into a letter of engagement so he or she understands the terms and how I will charge them; it’s only after they sign the letter indicating their acceptance of my terms can I begin to provide them with legal advice. It’s not until they understand my fees that I become their lawyer. This also applies to accountants and other professionals.

Many advisors are afraid that if they explain those fees at that early stage they will not land the client. Regardless, this needs to be shared early in the relationship so the client can make an informed decision.

Thus, here’s a list of questions to ask the prospective client in the first meeting:

  • What are you looking for in an advisor?
  • If you have another advisor and are looking for a new one, why? Are you dissatisfied for some reason?
  • What services are you seeking? Investments? Insurance? Investment planning?
  • What products do you have an interest in — and why? (Do they know?)

Assuming you learn what the client expects and you are licensed and have the expertise to provide them with the advice they want, then move right into your presentation of the services you offer, including the cost. Through this presentation, you need to explain, not sell. That means you need to:

  1. Explain the services and products you offer and if there is any limitation.
  2. Explain the need to drill down with the client to get to know him or her before you can make any recommendations. (Much like a lawyer or doctor needs to understand the issues before they can prescribe the course of action recommended; use this analogy if you find it helpful).
  3. Explain fees and alternatives and how they work.
  4. Explain that if they want to retain you, then you will have to delve into the know-your-client process in the next meeting. (This will serve to manage their expectations.)
  5. Tell prospective clients that, ultimately, they will get a written plan (if that’s what they want) and what it would cost.

This might be different than what you do today to land a prospect, but remember that you’re a professional required to offer the client a balanced approach with full disclosure and transparency on costs. So, if you take these steps, then you will pass with flying colours when the regulators send in their mystery shopper.

*Here is the link to the OSC’s report, Mystery Shopping for Investment Advice. I encourage you to read Appendix E.

Advisors’ failure rate in recent “mystery shopping” tests: 37%. Imagine if doctors performed that badly.

Mystery shop highlights investor difficulties with advisors