Headed to breakfast one recent morning while I was staying at a fancy resort in Florida, I saw a very famous person waiting in a hallway. He reportedly had lost a big part of his family and foundation money because of Bernie Madoff.
I wanted to say that I was sorry he had lost his money. I wanted to say that our company is the "real deal"-good money managers, caring and responsible people, who would like to help him. I wanted to say that we have a strong reputation and have won many awards. I wanted to say, "Just check our credentials with your family and friends."
But how could this man believe me after what he had been through? Wasn't that exactly what Madoff told his victims?
In the two years since the Madoff scandal broke, most wealth managers and financial planners have heard some version of the question, "How do I know you're not the next Madoff?" What's the best way to respond?
THE 800-POUND GORILLA
It's also true that sometimes the question goes unasked, but may well be on the minds of your prospects and clients. Should you raise it yourself? Can you assume everyone is thinking it anyway, or are you opening a Pandora's box?
Recently I met with someone who was looking for help with his finances. We had so much in common: family, friends, schools, charities and neighborhoods. But he didn't sign up. He didn't take my phone calls. He never came back.
When I ran into him at a wedding a year later, he greeted me warmly and wanted to spend a lot of time making small talk. A little while later, the mother of the bride told me, "You remember my friend who came to see you but didn't sign up? He said he really liked you and your firm and was very impressed, but he just couldn't bring himself to put his money with a family-owned business after Madoff!"
Since he didn't say it himself, I couldn't respond. I wonder if I would have been able to change his mind. Madoff, the ultimate salesman, has made our job harder than ever, but there are good ways to fight back.
How has Madoff hurt your business? Let me count the ways.
* Lacking trust. Most individuals come to financial advisors and wealth managers through referrals, either by professionals or by family and friends. Now both of those paths are called into question.
The common thinking today is, "Sure, you think he's a great advisor, but smarter people than you have been fooled, so why would I do what you are doing?" Fewer people are asking friends for advice, and even fewer are following through on advisor recommendations.
* Losing confidence. Our industry has been shaken by the great number of scandals in the past few years. How are smaller investors supposed to keep their heads above water when there are so many big sharks swimming by?
I recently was on the receiving end of a 20-minute diatribe from a taxi driver on how others can be "fools" with their money, but even if he is getting 1% to 2% interest, he knows his money will be there when he needs it. I zipped my lip. Even wealthy people are keeping more of their money in cash.
* Withholding information. Many clients understand they have to trust someone and invest somewhere, but they just can't feel comfortable putting everything on the table all at once. They will tell you some of what's going on, but they'll hold back on other information that you need to give the best advice.
* Splitting accounts. There have always been investors who like to have their assets in more than one place and with more than one professional. Now this attitude seems more common. People find it hard to entrust all their assets to one advisor, despite the many safeguards.
* Getting cynical. For many years we have done pro bono work. We like to give back to the community and train our staff to do the same. Just recently for the first time, we've been asked why we are volunteering our time. I actually made a list of talking points for board members about why we would choose to help their organization without compensation. Honesty and good intentions can't be assumed.
SLOW PROSPECT PIPELINE
Instead of taking the appropriate steps for their financial situation, prospective clients are cobbling together home remedies to avoid a possible charlatan. Many people are trying to choose a financial advisor on their own, thinking that they can't trust their friends and families for referrals.
Prospective clients find names at meetings of investment organizations, by attending speeches or reading investment books. Ironically, if no one they know uses an advisor, we seem to be untainted.
They also visit more advisors during their search than they used to. More than one prospect has said to me that he or she will be seeing four to six advisors before making a decision. They are not necessarily comparing apples to apples either. They may be comparing a broker to an RIA to an accountant to a banker to a neighbor or friend, certainly an awesome and confusing task.
Many prospects welcome advice from all sources. They seem frozen in time, unable to choose, so they leave no stone unturned. The information they receive may confuse them even more, making it less likely that they will reach a decision.
Some prospects eventually decide they should stick close to home. So, while they interview many advisors, they choose someone they have known all along: another parent at their children's school or a nephew who's a broker.
HOW TO COUNTERATTACK
There are many ways we, as professional advisors, can sidestep the Madoff insinuations and help our prospects find a comfortable home at our firms. When you are asked the Madoff question, never act nonplussed. Better that your prospects pose it to you than to their spouses at home at night. Answer truthfully and openly, and let prospective clients know it's all right to raise any question that troubles them.
* Talk about transparency, about how you will share information and give them what they want, including backup for the work that you do on their behalf.
* Tell them how and why you custody assets at a third party (not at your firm, and never with the same party who directs the accounts).
* Tell them how they can safeguard their assets by receiving monthly statements from a third party (not only from the money manager). If they wish, they will be able to see their accounts online.
* Tell them that they should have accounts in their own name (not commingled with other clients).
All these points, obvious as they are to you, may be new to your prospects. So help them feel comfortable asking questions if they don't understand something.
Then bring the discussion back to the reasons the prospect is sitting in your office. Focus on the client, his or her goals, family and current asset allocation. Don't be afraid to show your expertise, your professionalism, your communication skills and, yes, your empathy for those who might have suffered before at the hands of a con artist.
HIT IT OUT OF THE PARK
Show your prospects that you care by taking these additional steps:
* Prepare a list that you can personalize for prospective accounts that includes why you want to work with them, how you feel you can help their financial situation, why, if appropriate, you want to work on a pro bono basis.
Include any references you can offer. For example, if you are interested in managing a school's endowment, you can refer to other schools you work with. Offer the same reassurance to clients.
* Consider agreeing with prospects that they may want to start off with more than one advisor if their asset levels are a good fit for your firm. You can always weigh in after a year or two on how you and the other firm have done, and ask for a larger percentage of assets, if appropriate. It may take you a little longer to get where you want to be, but that's the new reality.
* Do more presentations on spec. Clients now want to have a better idea of what the final product will look like.
* Be prepared for more meetings than usual so a prospect can get to know you and make a decision. Don't disparage prospects who need more time and space to reach their comfort level.
* Tell prospects that you will work with them on their issues, whether it is introducing them to your happy clients or your competent staff, or starting with less than all of their assets for the first year. Of course, you may find yourself working harder and longer than before to gain their confidence. As one new client told me recently, "After all, Karen, it is a leap of faith."
So even if we think we've been successful for a long time, we never can stop presenting our credentials and accomplishments, and demonstrating our stability to those who are new. As you sit in prison, Bernie, thanks for the reminder.
Karen C. Altfest, PhD, CFP, is executive vice president of Altfest Personal Wealth Management in New York City. She is the author of Keeping Clients for Life and has been named one of the best financial advisors in the United States by Worth magazine.