“I don’t do business with friends.” You have heard that along with “You can’t fire friends.” People close to you often dust that one off when you classify them as prospects and try talking business. Let us look at several ways to address the issue.
Why This Is An Excuse, Not A Legitimate Objection
On the surface, “I don’t do business with friends” sounds logical. If something goes wrong, your new client fires their advisor and also loses a friend in the process. They are implying they place a high value on your friendship.
This short exercise will show why it is not a legitimate objection. Think of the smartest and most famous investor or money manager in the world. Hold onto that name. Now imagine he decided to take on 20 retail clients and would manage their money. Only 20, but account size was not an issue. Now imagine this famous investor chose you to find those 20 people. The only way to get on this list is through you.
Obviously, this story is front page news in the WSJ, Barrons and the New York Times. Commentators talk about you on TV. Your phone never stops ringing.
Do you think your friend would say: “Having the world’s smartest investor managing my money is tempting, but I think I will pass. I don’t do business with friends.” Is that what they would say?
Of course not! They would turn the situation around and “play the friendship card.” They would recount how close you have been, how much you mean to each other. Because the friendship is so strong, they would claim you have an obligation to take them on as a client! They would also want another slot for a relative! The risk to friendship objection vanishes when it’s something they want that is in short supply.
FYI: You could build a similar, but not identical story by finding a world famous money manager that is available through your firm’s managed money program, explaining you are the conduit for having their money managed (indirectly) by the famous investor!
Addressing The Risk To Friendship Through Portfolio Risk
The risk to friendship seems to always be on the downside. If your advice makes them money, there is no risk to the friendship! It is when they lose money and need to sever the relationship that problems develop. A New York advisor realized the issue was some people do not take ownership of their investment decisions. If they made money, they were smart for following your advice. If they lost money, these were your bad ideas.
This advisor would start by recommending the basic building blocks for a portfolio. On the equity side, it’s large cap growth and large cap value stocks. These are available through mutual funds, separately managed accounts and ETFs, in addition to buying individual stocks. Although the advisor knows there is more money out there, they stop at these investments.
Sometime later, the client calls. They want small cap stocks. They want technology stocks. They think the advisor’s recommendations are sound, but boring. The advisor intended to take this next step anyway, but he waited until the client brought it up. They are literally saying “Please take me further out along the risk curve.”
If the stock market declines sharply, it is often the small cap, single country or industry funds that suffer the most. The large cap growth and value funds often suffer less. The client realizes the advisor made good recommendations, but they “sunk themselves” by expressing their interest in riskier investments. They ended up taking ownership.
If “Risk to Friendship” Is An Issue, Lead with It
Often the risk to friendship is an unspoken objection. Your friend has dropped clues. Try this approach:
Statement #1: “You know where I work and what I do. We have known each other for five years. I have never brought up business because our friendship is very important to me. I would never want to put it at risk.” They might say: “I feel the same way.”
They might not say anything. You should be able to move into the next statement.
Statement #2: “Besides, I always assumed you work with someone already. They probably take great care of you and give you excellent service. Most successful people have that kind of relationship with their advisor.”
You have described them as successful. You assumed they have an advisor. They might say: “My advisor never calls. What can you do for me?” They might agree with your statement. They might say nothing. Keep going.
Statement #3: “It has been a difficult several months in the market. You might know some people who have not been as lucky as you. I thought we might spend a few minutes talking about ‘What I do,’ then, if you come across someone with that problem, you will know how I might be able to help them.”
By shifting the conversation into the third person, helping someone else, you can explain what you do without them feeling put on the spot. Your description of who you might help could include them too!
Introduce The Report Card
This approach aligns with “You can’t fire friends.” When I was in production, I would explain to friends: “If you became my client and we worked together, you should get a report card. If I am doing a lousy job, you should be able to fire me.”
This might sound outrageous to you! The portfolio or performance reviews are the periodic report cards. You are demonstrating accountability. People like that! They can be pretty tolerant of market fluctuation if they feel you are staying on top of things. (There is a limit to their patience.)
You have addressed the “You can’t fire friends” issue because you have provided a roadmap for unwinding the relationship. It should sound guilt free to your friend because it was your idea!
There are several ways of addressing the “risk to friendship issue.” It is not a deal breaker.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.