I've been part of a public speaking group for the better part of 25 years. A recent opportunity came along to speak on the topic of business ethics for thirty minutes. I was up for the challenge until I realized that I was meant to share the stage with two other speakers. 10 minutes to present ethics in the financial services industry? And how would my views crafted from 34 years in the industry jive with the others?
I needn't have worried. The three of us presented the same points from our respective industries. The themes of listening, educating, and transparency are integral to our views on ethics. Here is a short summary of how I work with prospective clients in my 401k practice.
Listening is key. I combine that with asking open-ended questions and more listening. Just as a prospective client is interviewing me to see if I am a good fit for their situation, so to am I interviewing them. Is this someone I can work with? Will I add value? Is their situation within my skillset or are they better served by a different advisor or even the DIY channel? And most importantly, can I see myself as happy when I get an email or phone call from this client? Listening, asking probing questions, and trying to get a feel for the prospective client are key.
If I think I can be of help, I then move into educating. I may present several solutions to their situation (ie, SIMPLE vs starter 401k vs full-blown 401k). I simplify the solutions as appropriate. My industry loves acronyms and jargon but a prospective client may be less than enamored with them and frankly may be confused. I find through this process that the solution presents itself.
Two points I would offer here. If you are the prospective client, ask the advisor how many times they have recommended this particular solution for similar clients. Be wary of an advisor who has the same solution for every prospective client. Could it be that all prospective clients to this advisor's office all are the same? Or could it be that the advisor is well-versed in one solution only?
The second point I would offer on education is that I am absolutely happy to recommend a different advisor or the DIY channel as a solution. Key to my ethics is that I must do the right thing for the prospective client even if that means turning away revenue. There is no amount of money in the 401k space that would let me take on a prospective client who is not a good fit.
Those types of situations can be exasperating for both sides. It is better to do the proverbial "Measure twice. Cut once" before agreeing to work with a new client. If anything, I am even more proud of the number of prospective clients I have directed to places where their needs are better served than I am of the 100 plans I currently work with. There are no shortcuts in ethics.
I could easily have talked for 30 minutes on ethics and as the graphic above shows, there are more angles to explore. Still, I wanted to end on transparency. Being in financial services does not exempt me from a steady stream of "free dinner" invites, solicitations to attend a seminar while "leaving my checkbook behind", etc.
There is no such thing as "free" in financial services. Everything rightfully has a fee. I am not aware of an investment solution that has been created yet that does not have a fee of some sort.
A quote attributed to T. Rowe Price reads, "Don't begrudge me a profit. Begrudge me the unfair profit". To that end, I am transparent about the pluses and minuses of a solution as well as how much I earn. There seems to be a reluctance in American culture to discuss fees, salary, etc. No one works for free. State what you will make and why the solution works. Don't be afraid to show how much effort you put in and what the client gets.
I was heartened when the other two speakers echoed my thoughts in their respective industries - solar panel sales and auto body repair. Recommending a solution without first listening and diagnosing is silly. Educating the consumer on why a solution or solutions could work is important and worth the time. And no one really believes that solar panels are free or that a mechanic will fix a car out of the goodness of their heart.
As you review your retirement plan, you might consider the ethical discussion (in addition to fees and performance) and see where that conversation leads.