Clients should share blame for bad choices

I don’t know about you but I’m tired of reading about rogue “advisors” like Earl Jones. And I’m especially tired of hearing the victims’ sob stories about his dapper looks and sophistication. How he was like one of the family. Cue the violins.

Fault has been placed on these poseur advisors, as it should be. But how about placing blame squarely on the clients themselves?

Let’s start with some enduring truths.

People typically find advisors, along with poseurs like Bernie Madoff and Jones, through referrals from family and trusted confidantes.

But if a parent recommends someone, will the average person truly do all the necessary due diligence? Probably not. They trust the referring person has taken care of those particulars. They figure, “If my own father is happy with this person, why wouldn’t I be?” But the fact remains that fault lies with the person who failed to read the fine print and check references.

People also find advisors through mutual hobbies and affiliations. Sometimes a client may bond with a person at a likeminded organization and then gravitate toward that person for professional services.

Problem is, many clients get too personal, which blinds their ability to remain objective about how their finances are really doing.

True story: I recently interviewed a client whom I’ll call Betty. She left an advisor who was competent and credentialed, but also a little standoffish and dull. Betty was looking to connect with someone on a more personable level and met her new advisor, Samantha, at a charity function.

And because of their newfound connection, Betty was more than willing to overlook a questionable investment Samantha placed her in. Seems that even though the investment is supposed to be guaranteed, Betty can’t access her money. Now, sometimes clients misinterpret the facts but upon checking with Samantha, I was dumbfounded that Betty was correct in her assessment. Scary stuff. Wonder how this situation is going to turn out in the long run.

Generally speaking, people find the advisor they deserve. What does the rogue advisor do? Promise the world and play to a person’s greedy tendencies. So, I’ll ask this of clients everywhere: Do you think a 12% rate of return every year is possible regardless of good or bad market conditions? Yes? Well then, you must also believe in the tooth fairy.

“The fault, in many cases, can lie in the client’s refusal to accept an advisor’s initial recommendation,” one high-net-worth investor confided in me recently. He’s had the same advisor for two decades.

This investor also said it isn’t unheard for someone to demand an unrealistic rate of return and then say, “I don’t care how you do it.” While most professional advisors would likely walk away, one or two may wrongly succumb to the pressure.

What the industry needs is more clients speaking up in favour of professional advice and how the system actually works: there’s no such thing as a free lunch and if it’s too good to be true, it probably is.

As one very smart client once told me, “The fact is no advisor wins ALL of the time, no matter how clever. The key is finding an advisor who will win more than he loses.”