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I have spent more than 25 years defending advisors in litigation and regulatory matters. The common thread underlying these issues is the communication gap between advisors and clients. When clients are secretive, advisors fail to draw them out; when clients expect too much, advisors fail to manage those unreasonable expectations. Although advisors steer the relationship, both advisors and their clients need to bridge the communication gap to reduce the threat of litigation.

People go to professionals when they have a problem that they don’t know how to resolve by themselves. They pay a person who has education and experience that they don’t have. They go to a doctor in the hope that a doctor can cure what ails them; they go to a lawyer to win their legal battles or to get help completing a transaction; they go to an accountant in the hope of paying lower taxes. However, whether the doctor finds a cure;, whether the lawyer wins the case; or whether the accountant saves clients’ money, these professionals get paid. In most professional-client relationships, there are no guarantees of success — and success is not a condition of payment.

Like most other professionals, whether advisors make or lose the clients’ money, they get paid for the advice rendered. However, unlike with payments to other professionals, who may not necessarily have resolved their problems, clients seem particularly annoyed about paying advisors when the clients’ investments lose money.

But paying an advisor or any other type of professional is not conditional upon results.

Communication is a two-way street

The job of a professional is to listen to their clients, ask the right questions, analyze the problem, and apply his or her expertise to help resolve the problem or help clients achieve their goals. I use the word “help” because the professional is not a magician. They don’t always have the solution. Accordingly, professionals need to manage their clients’ expectations so that they’re reasonable. Professionals need to explain clearly to their clients that what might be achieved cannot be guaranteed. They need to explain what can be resolved and what cannot, what might be the outcome and what might not.

For example, a doctor will prescribe cream for a rash but might not be certain this will resolve the problem. So, they might say to the patient: “Here is some cream for that rash. If it doesn’t go away in three days, come back to see me so we can explore this more deeply.” This doctor is managing the patient’s expectations. Although the doctor is prescribing this particular cream because the rash may be resolved with this prescription, it may not work. The doctor explains this and suggests a second step in case it doesn’t. Advisors need to take a similar approach in managing clients’ expectations.

During the past several years, the role of the advisor has evolved from one of recommending products (e.g., stocks, bonds, mutual funds, life insurance, segregated funds, hedge funds, pooled funds, etc.) to one encompassing a more holistic approach, examining the client’s entire financial situation. Even with this important shift, a substantial number of clients continue to measure their advisors’ performance by one criterion and one only: how much money their investments have made or lost. These are the clients who are most likely to complain when markets turn against them and pull out their money at a loss because they didn’t allow time for the market to recover.

Such evaluations are not realistic or reasonable as short-term returns are dependent on short-term market performance. Instead, clients should look at the entire picture, including the value of all services their advisor has provided over a longer period of time. Because there cannot be a guarantee of success, clients’ expectations need to be carefully managed throughout the entire relationship to avoid surprises or disappointment. The No. 1 reason, in my experience, why clients sue their advisors is that they’re surprised when they lose money — even if the investments they lost money on were consistent with the risk profile set out in their “know your client” forms.

So, how can advisors avoid facing unhappy clients? From the beginning of the relationship, advisors need to ensure that they engage in two-way, transparent, communication with their clients consistently and continually and that they’re managing their clients’ expectations. Clients, in turn, need to keep their expectations in check. The responsibility is on both parties.

This is an excerpt from Communication Risk: How to Bridge the Client-Advisor gap to Protect and Grow Your Business by Ellen Bessner. Copyright 2018 Ellen Bessner, published by Babin Bessner Spry LLP.