If you’ve been an advisor for some time, this probably has happened to you: Without a word of warning, a good client whom you thought was satisfied submits a dreaded “request to transfer” form.
“I hereby request the transfer of my account and its investments as described above to” a rival investment firm. Suddenly, a six-figure account you worked hard to win is flying out the door. What went wrong, you ask yourself?
If you have to ask, then what we’ve got here is a failure to communicate. It could be you were too busy to call when the market was down, leaving the client to fret. Or your firm’s hard-to-understand client reporting might have frustrated him or her.
Whatever the reason, failing to communicate simply and clearly with clients in a way they understand can cost advisors business, experts say, or land them in hot water with their compliance departments and the regulators. Sometimes, clients sue.
“It’s absolutely key that advisers speak in the language clients understand,” says Ellen Bessner, a litigation lawyer and partner at Babin Bessner Spry LLP in Toronto. Ms. Bessner is author of the recently published book Communication Risk: How to Bridge the Client-Advisor Gap to Protect and Grow Your Business and the earlier Advisor at Risk: A Roadmap to Protecting Your Business. Both books offer practical advice on how not to need her law services.
To Ms. Bessner, clear communications means avoiding jargon, shop talk and the kinds of acronyms common in investment research reports. “Just speak people’s language. It’s fundamentally and absolutely necessary.”
Now, let’s imagine, for a moment, what your former client might be saying about why he left your firm and where he might have gone.
Judging from Tom Bradley’s experience, he may well have gone to Steadyhand Investment Management Ltd., a firm widely appreciated for its low fees and clear, comprehensible website, management blogs and performance reports. Mr. Bradley is president and co-founder of Vancouver-based Steadyhand.
“We sign up new clients every day and have been running at this pace for a while,” Mr. Bradley wrote in a recent blog. From what he is seeing, “advisors’ obfuscation” is causing more investors to move – even if they were making good returns with their previous firm.
“They’re sick of guessing about fees and returns. They aren’t getting much attention, and as a result aren’t sure what services they’re entitled to. They have doubts about whose side their advisor is on. Or, in some cases, they’re just tired of being talked down to,” Mr. Bradley writes.
Investment firms have a tendency to want to keep clients in the dark, he says; until recently, this strategy has been successful. “Well, it now feels like the worm is turning,” he says.
Despite new client reporting rules, known as CRM2 (phase 2 of the Client Relationship Model), the industry has done the “absolute minimum” to improve its reporting, Mr. Bradley said in a telephone interview.
“One thing we do, and we hope the industry grasps on to, is just making things more understandable, getting rid of the jargon like EBIDTA and yield curve,” he says. Mr. Bradley says a client told him recently: “I’ve been waiting for this forever.”
Communication is critical because it affects investor outcomes, he adds. Investors who have confidence in their advisers tend to stay the course, and so they are more likely to achieve their goals.
“The next big thing in investing is going to be investor behaviour,” Mr. Bradley says. To shape it, the industry needs to become better at reminding clients that their goal is to generate long-term returns, he adds.
To achieve the desired outcome, clear, open communication must go both ways, Ms. Bessner emphasizes. Clients are sometimes reluctant to be forthright with their advisers, which can cause problems for both of them, she notes.
“The whole industry is about clients meeting their goals,” Ms. Bessner says. “If there is not clear communication around that topic, it is very difficult for advisers to help.”
Websites often a lost opportunity for investment industry
Having an easy-to-read website is important. In a recent survey, VisibleThread, a company that offers tools to analyze how well corporate websites communicate, found the writing on investment-industry websites “turgid, dense and complex.” Globe and Mail columnist Rob Carrick wrote about the VisibleThread survey and the investment industry’s apparent inability to communicate in plain language in a July 2018 column.
VisibleThread scanned the websites of 69 global money managers, including RBC Global Asset Management, BMO Global Asset Management and the Caisse de dépot et placement du Québec. The average overall readability score was 36.2, on a scale where 60 or higher is ideal.
VisibleThread’s “clarity index” was based on readability and the use of overly long sentences, the passive voice and hard-to-understand jargon.