Your friends know where you work and what you do. Some have never said: “Will you help me with my money?” The stock market was a dangerous looking place in December. What’s holding them back?
Lots of stuff. Plenty is imagined. As advisors, we often “take people off the list” because it would be awkward to approach them. About 18 years ago, when I started my training business, “How do I transition social relationships into business relationships?” was one of the major questions posed by experienced advisors. “Transforming Wealthy Friends into Clients” is a major section in my book, “Captivating the Wealthy Investor.” It was the topic of my first MDRT presentation in 2008. The bottom line is lots of people want to know why friends don’t become clients and what to do about it.
Through interviews and surveys, I learned there were ten major reasons. Nine of them can be addressed. The last can’t.
1. Confidentiality. They assume you talk about your clients. Many other businesses do. They don’t realize advisors observe the same rules as doctors, lawyers and accountants. This also means you don’t drop hints with friends or send charities in their direction.
If it comes up: “We’ve known each other three years. We know many of the same people. It’s possible some might be clients. If I haven’t said anything before, it’s unlikely I’m going to start now.”
2. Do they understand what you do? We make broad assumptions. “She’s a teacher.” What does she teach? Don’t know. “Is she a department head now?” Never thought to ask. Your friends do the same. “He’s an insurance agent. A banker. A stock broker.”
If it comes up: It won’t. Get the conversation started. Tell them what you’ve assumed they do. Ask them to provide more detail. You are curious. People like talking about themselves. They will likely ask you the same question.
3. Risk to friendship. They really mean “Can you deliver?” They are worried about a bad investing relationship blowing up the friendship, or worse, the in-law family dynamic. They don’t want to take that risk.
If it comes up: “If you became a client and took my advice, you should get a report card. If I’m doing a bad job, you should be able to fire me.” They can see a way out. It was your idea.
4. Have they been asked? You assume they haven’t spoken up because they don’t do business with friends. They assume you haven’t asked because you don’t do business with friends.
If it comes up. It won’t. Everyone should have the opportunity to say no. Ask them.
5. Do they know you are adding clients? If you tell friends you work long hours, evenings and weekends, they may assume your plate is full. They might really need help, but won’t ask because it would be an imposition. They don’t want to impose.
If it comes up: It won’t. You need to let them know there’s room for them. When they ask: “How’s business?” tell an anonymous story about the client you just added. Ideally it’s a friend of a friend.
6. Minimum threshold. Ever get turned away from a really hot club or bar because you weren’t 25 years or older? It’s humiliating. Your friends might assume they don’t have enough money.
If it comes up: They might ask: “What’s your minimum?” Try giving the range of your current clientele along with the average account size. That’s inclusive. They can see where they would fit.
7. Do they have money now? Banks always have money to lend, but people don’t always have money to invest. It might be tied up. You have no clue.
If it comes up: You probably need to ask. “I’ve wanted to talk with you, but I don’t know if this is the right time.” They might say their bonus comes in February or they are waiting on the proceeds of a house sale. Now you know.
8. Experience. Many advisors enter the business as a second career. Friends might think “She was a great engineer, but what does she know about stocks?” They worry a newbie will be practicing on them.
If it comes up: They probably don’t understand your role. You are not a stock picker, you are a relationship manager. Explain what you do.
9. I already have an advisor. Who doesn’t? It might be a human advisor or a robo-advisor. They are assuming it’s a one and done situation. They have one barber. One accountant. One mechanic. They forget they see several doctors, shop at several wine shops and fly several airlines.
If it comes up: The book “The Millionaire’s Advisor” by Russ Alan Prince and Brett Van Bortel makes the case the wealthy often have multiple advisors. When they tell you they’ve got one already, you might say: “I expected that. Successful people often have multiple advisory relationships. You’re successful. How many do you have?”
10. I never liked you. When you marry, you get the in-laws as part of the package. At school and work you learned about “Frenemies”. They know you, but don’t like you. They wouldn’t do business if you were the last financial advisor left after the zombie apocalypse.
If it comes up: They probably wouldn’t say it outright, but you can tell. This is a disaster waiting to happen. The downside is virtually unlimited. Don’t even try. The only thing that might work is investments with few moving parts that perform as advertised. Treasury Bills are an example.
As you can see, there are many reasons friends don’t do business. Most involve misconceptions or a lack of information.
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