Advisors sometimes must deal with clients' prejudices.
Potential clients, looking for a financial advisor
who understands them and their financial needs, often bring a
complicated set of assumptions to the table that sometimes includes
irrational prejudices against a certain type of investment or against a
particular type of advisor.
Prospects' preconceived ideas can range from what might be considered a common even though unjustified prejudice, such as not wanting to deal with a person of another race, age or gender, to the unexpected, such as having a phobia against real estate. Some fears or prejudices that can affect investment strategies may date back years or decades, according to financial advisors who have run up against these types of walls.
Thomas E. Murphy, a CFP licensee from Dallas, with TEMAA Financial, says he has experienced problems with clients because of circumstances that affected the Texas real estate market two decades ago, even though the same set of circumstances are never likely to occur again.
In 1986, retroactive tax law changes that eliminated deductions for passive investments in real estate partnerships combined with other factors to devalue Texas real property. In the Dallas area that drop was about 20%, Murphy says, and some people are still reacting to the sour consequences of that situation, which led to a real-estate-related recession.
"In the mid-'80s oil was down, agriculture was down and then the federal government made changes that knocked the stuffing out of real estate in Texas," Murphy remembers. "We had a recession that some people even called a depression, and the federal government took over a lot of banks. By the time the tax law changes started to affect New England and other areas of the country, the federal government had changed its policy and was not forcing the banks to close, so the affect was not as dramatic, but we still get people in Texas who are afraid of (investing in) real estate, even as an asset class, because of what happened here.
"The extreme of that same type of thing is older clients who may have been affected by the Great Depression and even today are afraid the government will go broke and won't even invest in government bonds. Is it possible for the government to default on its bonds? Yes, but it is extremely unlikely, but it still affects people's decisions," Murphy says.
Thomas Murphy's brother, Jackson Murphy, who is a planner with an M.B.A. and is part of the TEMAA firm, explains how they handle such a situation. "If it is a matter of not wanting to invest in a particular asset that is good for them, like the real estate issue, we just take it very slowly and spend a lot of time explaining why their portfolio will function better a certain way. If you gradually increase that particular investment, usually the client begins to feel comfortable with it."
Mark Cortazzo, senior partner at Macro Consulting Group in Parsippany, N.J., and a registered representative with SII Investments, a part of the National Planning Holdings network, says he has had clients who inhibit their investment options by demanding that investments meet unreasonable criteria.
"For example, I have had clients who are very conservative, who do not want to invest in any company that provides benefits for unmarried partners, and in many states such a benefit is required by law. It is also information that is almost impossible for me to find out. If a company is based in Texas but has branches in Massachusetts, where gay marriages are legal and equal benefits required by law, how does that affect the Texas operation, and how would the investor feel about it?" he asks. The answer to that question is often unknown and the relevant information, to satisfy the client, is many times not available through any normal screening process, he says.
A potential client's prejudices also can be directed at the financial planner as an individual, and some advisors have had startling run-ins with prospective clients. Gary W. Silverman of Personal Money Planning in Wichita Falls, Texas, has experienced two instances where prejudice snuck up on him as a real surprise.
"I had been in business about three years here. We are near an Air Force base, so I have a lot of Air Force officers as clients, but my background is that I was enlisted in the Navy for six years and served on submarines. I had a client actually tell me he was not comfortable dealing with an enlisted person because he was an officer. That was the only time I ever heard that one, but I guess you hear everything eventually."
Often, the best solution is to not take the person as a client. "To a certain extent, some of what might be considered prejudice is justified, because a client wants someone who understands him and his beliefs if the advisor is going to be investing his money," Cortazzo says. "A person works well with someone he or she can relate to, someone who has the same values. As a financial advisor, if you can draw parallels in your life with your client's life, you can build a bridge. The default in a financial advisor's relationship with a client is going to be whatever is familiar."
Cortazzo uses the knowledge he gained from personal experience when he is mentoring new advisors. Cortazzo earned his securities license before he could legally drink, and in the beginning faced the problem of clients distrusting a young advisor.
"When you are really young, you can start out with a two-point deficit when you come into a meeting, and you have to work to get to zero before you can build a relationship that will benefit the client," he says. "You have to do all your homework and bring your 'A' game to the table, because, as an advisor, you will not be given the benefit of the doubt. But if a person really does not trust you, you probably should not take them on as a client, because the relationship requires trust. If you are not trusted, you will be blamed as soon as there is a hiccough in the market, and there are always hiccoughs."
Thomas Murphy has experienced the same problem from the other end of the spectrum and he agrees a successful planner needs to consider the client's potential fears, even if they are not based on rational criteria.
"There is a ten-year age difference between my brother Jackson, and me, but it looks like even more because I have white hair and he doesn't. People who do not know us often assume we have a father-son business. So we sometimes have clients who feel more comfortable with one or the other of us because of the age difference," Thomas Murphy says.
Jackson Murphy explains, "Sometimes people will explicitly say they want to deal with an older or younger person, but usually it is conveyed by body language or eye contact. We let them work with whomever they feel comfortable with."
Next to age, gender, race and religion are probably the most common prejudices that affect people in any line of work, including financial planning. Mark Cortazzo has experienced the gender bias.
"I had two people who were potential clients tell me they wanted to make sure they would be dealing with me-they did not want to do business with a female advisor. And the surprising thing is they were both women," he says. "Neither of them became clients. They just did not come back."