Last week, I wrote about a former colleague who had enlisted the help of a higher power – a client’s wife – to help persuade the client that his proposed course of action was likely to end up as a bad investment.
Sure enough, within a few minutes, a sheepish call came through – the client had been convinced.
My colleague was able to take this action because he had complied thoroughly with the need to know his client. The relationship that they had built had given the adviser an understanding of the client’s family dynamics, and he knew that the man’s wife held a veto on some decisions. It was not a card that he would have wanted to play very often – but in this case he felt it justified.
The Know Your Client form, or “Fact Find” as it is known, is a regulatory requirement when a wealth manager takes on a new client. It is vital that the advisor knows the facts about his new client’s finances and lifestyle, or he will effectively be advising blind, unable to know whether the products that he recommends are genuinely suitable and affordable.
When advisors fail to ensure that their clients can really afford, and really want, the products into which they are investing, the problems begin to mount up very quickly. Did someone say “sub-prime mortgage crisis”?
One of the most important questions in the Fact Find is worded in this manner:
Who makes the investment decisions in your family? You or your spouse?
This is a very important piece of information. People are sensitive about their money – and understandably so.
Answers can vary from the brash to the sheepish, and can be hugely different depending on cultural factors. Many clients feel pressure to be seen to be more in charge of their own affairs than they really are.
In some parts of the world, Southeast Asia among them, the decision-maker may even be further removed than the spouse. Parents, sometimes grandparents, can be heavily involved, making the process of advising a cumbersome one.
Powerful people, whose daily lives involve countless decisions that affect operations around the world, can be very reticent when deciding on a course of action for their personal wealth, and will defer to their partner. Shy and retiring folk, on the other hand, can be assertive and confident when it comes to throwing their weight behind an investment strategy, sometimes regardless of the responsibility that they have to ensure their family’s financial well-being as well as their own.
“I decide,” someone will confidently assert when asked the question. Alarm bells always ring at this point. It is almost certain that, at the moment of signing on the dotted line a week or two hence, a client who takes this tone will hesitate and say, “I’d better just run it past the wife before I commit.”