I was asked to write an opinion piece for FinancialAdvisorIQ (A Financial Times Service) about the types of mistakes advisors make when presenting products to clients. Mistakes can result in lost opportunities for clients and a loss of revenues for advisors. Advisors should always be upfront about fees and discuss the potential for underperformance.
Top mistakes include:
Too much jargon. Advisors sometimes use too much industry jargon when explaining how products work, rather than stressing their benefits to the client. Clients don’t care about the name of the program they are investing in. They want results. Advisors should “sell” the concept and its benefits through the consultative process and bring in the specific product names only when they have to.
Whether the strategy is a mutual fund or individually managed accounts, advisors need to explain how these products will help the client reach his or her goals. It helps to ask clients about how much detail they want. Advisors should never oversell products, because the goal in the case of underperformance should be to replace the investment, not the advisor who pushed it.
Lack of transparency. Another cardinal sin in this realm is failing to explain fees clearly and openly. Costs should be discussed up front. If the client has to ask about them, it is probably too late. Advisors should describe the types and frequency of fees and be sure to distinguish between different types of investments — a no-load mutual fund versus A shares, for example. Further, advisors should ensure that clients are able to conduct apples-to-apples comparisons between different product types when needed.
Failure to understand the product. While advisors don’t want to inundate clients with too much product information and detail, they also want to avoid getting stuck with unanswerable questions. Presentations should be customized for each client; engineers will probably want to know more of the nitty-gritty of a product, whereas doctors might be more curious about what other doctors are invested in.
Jumping on “hot dot” products. While advisors are well served by researching new products and incorporating them into their business as appropriate, running to sell the new hot product is rarely the right strategy. The product needs to be the most suitable investment at this point in the client’s investment life. The client’s larger investment goals, their unique needs and the state of their existing portfolio should play the most important role in a product recommendation.
