By Peter Mastrantuono
We are all guilty, at some time or another, of ignoring the advice of an expert. Usually it’s not a wholesale rejection of advice, but more selective, “Doctor, ok, I’ll exercise more, but cut out the chocolate? Never!”
What happens, though, when a client chooses to work with a financial advisor and spurns his or her best advice?
Financial advisors are generally either a broker (in which they must meet a suitability standard with respect to investment recommendations) or they are a fiduciary advisor (in which case they must act in the best interest of the investor). Many financial advisors are hybrid advisors in which they may sometimes act as a broker and other times as a fiduciary, depending on the type of relationship the client wants.
Ignored advice typically has little implication to the broker or the client since it is usually related to a single transaction idea (e.g., buy or sell a stock). The worst case is a lost commission or missed profit opportunity.
For the fiduciary advisor who has legal and ethical responsibilities to do his or her very best for the client, rejected advice goes to the heart of that relationship. After all, the advisor is getting paid for the advice being provided and is accountable for the outcomes of such advice. If the advice is rejected, then what is left of the relationship?
Fiduciary advisors can respond in one of two ways. They can choose to accede to the client’s rejection and make a written record of it for their legal protection or they can end the relationship with the client. The choice they make may turn on how foundational the rejected advice is.
For instance, an advisor may be comfortable with a client’s decision to reject investment in a particular company or country because of personal values, but not so comfortable with the client’s desire to spurn a diversified portfolio recommendation for a portfolio of highly concentrated holdings.
Is Spurned Advice Symptomatic of A Bigger Problem?
Sometimes the act of rejection is unrelated to the value and relevance of the advice given by the advisor. It may be rooted in other issues that both the client and advisor need to understand.
Decision paralysis: When overwhelmed with information or the magnitude of the decision, the safe default is to not act or ignore the advice. To overcome this, clients need to feel that they can ask as many questions as necessary until they are comfortable with making a decision. For the advisor, rejection and hesitation needs to be viewed as an invitation to engage the client in additional dialogue until the real concerns surface.
Communication failures: If advice is rejected, maybe the advisor did not have a complete understanding of the client’s needs, concerns and objectives. An experienced advisor will often review with the client the information that was the basis for the advice and dig deeper into the client’s objections to get a better understanding of what got lost in translation.
Lack of trust: Clients may reject advice because they simply do not trust the advisor providing that advice. To overcome this, investors should be honest about their concerns with the advisor to allow him or her to address them. However, trust is a fragile thing, hard won and easily lost. If an individual doesn’t trust his or her advisor, it may be time to look for a new one.
Peter Mastrantuono is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Peter worked for over 30 years in the wealth management industry, focusing on retirement planning, investing, asset allocation and financial planning.