Legally speaking: Professional networks service and liability

(December 2007) The professionalism mantra proclaimed by financial advisors, dealers and insurers speaks to prospective clients and existing clients about trust. This mantra of trust and professionalism happens to be the key benefit or message advisors have to offer in their marketing to clients.

Once marketing efforts have brought prospective clients to the advisor’s door, the marketing focus must then give way to professional delivery of advice, services and products. Once the trust relationship has been established, the financial advisor must follow through by delivering on this promise of professionalism and excellence.

Working with other professionals in a Professional Network is one way to generate additional referrals — the old adage that “givers get” is true — and fulfil the commitments you make when marketing to clients.

Marketing 101

After 10 years of attending continuing education sessions across the country for financial advisors, I have noted a common theme: CE providers, MFDA dealers, IDA dealers and insurers all want to promote to financial advisors the value of marketing themselves as “professionals.” The message is financial advisors attain the best results when they sell their expertise and their trustworthiness. In other words, financial advisors are taught how to effectively sell products by convincing prospective clients and existing clients of their professionalism.

Service

Once the client is convinced of your professionalism you need to deliver. The needs of most high-net-worth clients are complex. They often have diverse investments, including, but not limited to, insurance, mutual funds, public stock, private stock and other investments. The myriad of financial products often exceeds an individual advisor’s expertise and licensing and leads to an obvious gap in their ability to professionally analyze financial holdings, give advice about opportunities and implement holistic solutions. In short, working solo is inherently risky.

The Solution

Part 1: Share the wealth with other financial advisors

Working with other financial advisors to meet clients’ needs can be motivated both by your professionalism and your own self-interest. In either case, client expectations and needs are more likely to be met when you work in a professional network.

To the best of my knowledge, I have not met or heard of a financial advisor who can meet the needs of every HNW client — such clients routinely need and call for cross-disciplinary expertise. Not only would the advisor need to be licensed under three or more regimes (IDA, MFDA, insurance), the advisor also needs a high level of competency to manage the client’s existing or potential products.

With that in mind, there are three choices: 1. Work within a professional network to deliver better service, reduce your liability and generate more referrals.

2. Allow clients to seek other financial advisors without your input and run the real risk of losing the client by betting that a client’s move to bring in additional advisors will result in a holistic outcome, despite the obstacles inherent when competing financial advisors work for one client.

3. Work solo and increase the risk of substandard service, missed opportunities and liability.

Referring clients to other financial advisors with high standards and skills complementary to your own is the best way to meet your client’s needs. This is also your professional duty. By sharing this work and coordinating your advice, your clients receive better overall service and your liability is reduced because you are not “all things” to your client — you are sticking to your skill set.

After this, the next best reason for aligning your practice this way is that referrals result in more referrals. The old adage that “givers get” is common sense and it works. Why limit your results to what you can achieve by yourself when working with other professionals increases your catchment?

As a lawyer whose business is primarily related to the work and failures of financial advisors, I cannot emphasize enough the importance of sharing liability as you share work and share expertise. Why be seen to advise on mutual funds if your real passion, knowledge and skills are related to insurance? Why take the legal and reputational risk?

Every practice includes clients who need tax, accounting and legal advice. Every financial advisor benefits when able to provide appropriate, quality referrals to other professionals (Others). Good referrals reflect positively on the referee.

A financial advisor’s performance is greatly enhanced by working with Others who have in-depth knowledge of the financial advisor’s role and products. What is the point of providing insurance to a holding company, in order to take advantage of Capital Dividend Accounts (CDA), if the lawyer has not properly incorporated the holding company? What is the point of estate planning if the lawyer failed to understand the plan when preparing the will? And what about tax advice? So many investment products benefit from tax planning, but does the HNW client have a tax expert at their disposal?

When I recently changed law firms my goal was to work with others who could service financial advisors. I looked for a tax expert. I looked for a succession planning, retirement and estate planning expert. I looked for a bankruptcy expert — we need to plan for the down times as well. I looked for someone who has experience buying and selling books of business. In short, I looked to share my liability, improve the services available to my clients and improve my marketing catchment.

Although I changed law firms to work within a professional network, the physical location of others is immaterial. I routinely work with others across Canada — technology has eliminated proximity concerns from the service equation. In fact, many clients who live in smaller communities seem to prefer it if their financial affairs are kept private. Working with others who are not local helps some advisors cater to this preference and reinforces that they understand and appreciate this important privacy concern.

I can comfortably recommend using a professional network to you because it is part of my own business plan. My experience is my sales tool. Will this work for you?

Working with a professional network just makes sense. By working within a professional services network you can improve your level of professionalism, better service your clients’ needs, increase your reach using centre of influence marketing and reduce your liability.

If not now, when?

Harold Geller is an expert on legal issues affecting financial intermediaries. Harold assists and represents dealers, MGAs, branch managers, compliance officers and advisors dealing with their compliance, regulatory and negligence issues. Harold also helps financial intermediaries with internal business and their clients’ legal issues. Harold is a well-known industry commentator, a CE provider and administrator with foradvisorsonly.com. Harold’s law firm, Doucet McBride LLP, also provides advice on tax issues, Succession Planning, Retirement Planning, Estate Planning and buying and selling books of business. Harold can be reached at hgeller@doucetmcbride.com.