There are a lot of rewarding aspects of being in the financial planning industry. But that doesn’t mean everything is rosy for financial advisors. As with any profession, there are challenges that trained financial advisors have to face. And in some cases, advisors have to deal with very unpleasant circumstances and handle client disputes.
One example of a very unpleasant circumstance most certified financial planners have to deal with at some point in their career is a client who thinks their advisor harmed them. While advisors already act with a fiduciary standard, there’s no guarantee that every client will think that’s enough. The reality is if something goes very wrong for a client, chances are they’re going to blame their advisor.
When this occurs, it can create a significant headache for an advisor. It’s important to understand that the fallout from this type of situation can happen regardless of whether it’s the client or advisor who’s in the right. The worst case scenario is if a client escalates the matter to the point where it has to go to court. Dealing with an arbitration panel can also be a very stressful experience.
Financial Advisors Need to Be Proactive
Many financial advisors assume that if they treat clients well, communicate clearly and adhere to ethical standards like not misrepresenting any aspect of an investment, they won’t have to worry about any significant client disputes. Although that approach and desired outcome will hold true for the majority of clients, there are always going to be problematic clients looking for a financial advisor.
The best case scenario of working with a problematic client is they only waste an advisor’s time. The worst case scenario is this type of client drags an advisor into arbitration or an other legal venue. Since trouble clients present a lose-lose proposition, the best thing an advisor can do is learn how to avoid them.
Manipulative behavior, constant victimization, major delusions, radical moods or goals that are disconnected from reality are all signs of a truly problematic client. If any of these behaviors are exhibited during an initial consultation, the best action an advisor can take is politely declining to take on the individual as a client.
Despite their best efforts, it’s not always possible for an advisor to avoid taking on a dysfunctional client. There are plenty of examples of clients who don’t start showing the major warning signs of trouble until they’re already in a relationship with the advisor.
If major issues start to arise with a client, advisors need to go the extra mile to ensure they document everything. By having comprehensive documentation, advisors can protect themselves in the event that things get escalated to arbitration.
In addition to carefully documenting everything related to a problematic client, advisors shouldn’t hesitate to look for the right opportunity to amicably end their relationship. By being proactive with these kinds of actions, financial advisors can minimize their negative interactions and focus their energy on all of the things that make this profession so great.