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."