Why Some Folks Get Investment Advice From Odd Sources And What Advisors Can Learn From This.
There are some old investment maxims related to getting advice from a cab driver, or these days an Uber or Lyft driver. Essentially, the point of these quips is that when someone like a taxi driver, your grandmother, your mechanic, etc. start conversing about stocks with you, it often marks the sign of a market top.There isn't much in the way of empirical evidence to support these notions. After all, it is entirely possible that anyone in a field that is not directly related to finance can pick a winning stock or fund. Perhaps the most credible, recent example of folks in non-finance professions making queries about a particular asset only to see that asset decline soon thereafter was bitcoin in 2017.As the largest digital currency soared, eventually flirting with $20,000, more and more “Uber drivers” became interested in crypto. In 2018, bitcoin would shed about 70% of its value
.For advisors, there are lessons in stories about clients saying they've acted on investment tips from everyone from their golf pro to their hair stylist to their pets' veterinarian. Simply put, it's about TRUST.
Put Yourself In Their Shoes
In a hypothetical example, say your client Jane comes into office and says she bought a particular stock on a recommendation from her brother, a dentist. Internally, some advisors are apt to think “Why would someone get investment advice from a dentist?” or “If she's getting investment tips from a dentist, maybe I should clean teeth.”Those trains of thought, logical as they may appear to be, miss the mark. Jane did not absorb financial advice from her brother based on his profession. She took that advice because she TRUSTS him.Advisors that can understand why a client may take advice from a source the advisor deems “dubious” or “unqualified” can take the next step and realize that the biggest asset they offer clients is not acumen in selecting investments. It is showing clients that you prioritize their best interests, aka building trust.“Bad actors will be bad actors regardless of how many rules are created to protect the public. Ethical advisors earn clients' trust the old-fashioned way,” said Erik Christman
, Oxford Financial Partners
in an interview with Forbes
. “Put the clients' interests first, do what you say you're going to do and treat others with respect. The good guys do win in the end.”
Trust: It's Worth More Than Fees
Many advisors operate on fee-based models, meaning there is plenty of incentive to grow their client bases. The more clients an advisor has, the more her potential fee base expands. That's just basic capitalism and there is nothing wrong with advisors wanting more clients. However, trust plays an integral role in expanding an advisory firm.When markets are roaring higher, it seems like everyone from the dentist to the hairdresser to the Uber driver are raving about their advisors, but in many cases these clients are not speaking about how much they trust their advisors. They are simply boasting about the advisor's performance.An advisor's goal should be to be the type of fiduciary clients laud when times are tough. When clients feel an advisor is trustworthy, they are more likely to refer friends and family to that advisor and that's how practices grow.Without trust “clients were more likely to end the relationship and much less likely to recommend their advisor to family or friends,” according to Vanguard
. “Nearly one-quarter of investors said they had an experience that undermined their trust in their current or previous advisor. Deeper trust can lead to greater client loyalty, increased referrals and favorable business outcomes, such as client growth.”Related: Industrial Hemp: Discussing a Risky, But Potentially Lucrative Niche With Clients