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Friends as Clients: You’ve got the Relationship – Now What?

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The following is an excerpt from my book, “Captivating the Wealthy Investor.” It’s available on Amazon.

Business relationships with friends are different from other broker-client relationships. You are concerned with relationships where the friendship came first – the social relationship was governed by a set of rules and is now entering a business relationship phase. This is different from the business relationship that later became a friendship because the business rules were set earlier in the relationship.

Balance in the relationship – What you put into or get out of a relationship is similar to the scales of justice. Initially you put in more than you receive on the other end. When developing a friendship you may make lots of initiating phone calls, but maybe the friend rarely picks up the phone to call you.

Later in the relationship the balance evens out. You are calling each other and initiating events more evenly.

Finally, the balance may tip the other way. You are getting more out of the relationship than you are now putting in because of the effort you expended on the front end.

These rules hold true when turning a social relationship to a business relationship. You want to give “150% of yourself” when getting the business relationship started. It’s new ground for both of you and you want to give plenty of positive reinforcement.

Demands on your time. Friends may feel they can “take advantage of you” and call you on Sunday morning to ask about your firm’s opinion on a stock. You need to establish ground rules, the same way as when you add a new client in the normal course of business. However you also need a “mechanism to be flexible” so you don’t offend your friend.

Reporting performance. This is a good example of being flexible regarding demands on your time. You agree with clients on a schedule of quarterly portfolio reviews. It’s August 15th. The next review is set for September 15th. The market is volatile. The client asks you on the golf course, “How am I doing? Have I made any money since the last time I got my statement?”

Related: Why Advisors Can Approach Friends for Business

Related: Why Don’t Friends and Family Do Business?

Performance reporting is not intended to be a “pop quiz.” It requires research and preparation. You might remind them you are both scheduled to meet on September 15th and you can answer all their questions then. The client is still anxious. Be flexible. “If this is a major concern we can move the September 15th review up to this coming Wednesday. I’ll need a few days to prepare because I don’t carry all this information around in my head.”

Respect for the rules. Friends may feel rules can be bent or broken because you are friends. This is dangerous and a risk to your integrity. For example, you may be discussing investments for a client’s IRA account. They like the idea, instruct you to buy and say, “My wife’s account has some cash too. Do the same in her account.” Unless the husband has a Power of Attorney, you need to speak to the owner of the account, his wife. Sound innocent>? The next request may be mandatory IRS withdrawals. It’s the last minute and you are meeting with his wife. She says “I have the amounts we need to withdraw. My husband isn’t here, but I’ll just sign his name. I do it all the time.” Don’t break the law.

Most important of all is trading behavior based on possible access to inside information. Even though you are friends, you have to be on your guard against illegal activity.

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