The Hazards of Financial Advisers Who Are 'Just Like Family'

We financial planners may know more about our clients than their doctors do. We are often among the first to know when clients' families are affected by significant life events such as engagements, pregnancies, career successes and setbacks, or serious illnesses.

Does that mean clients should think of their planners as part of the family? According to a recent article by Deborah Nason for CNBC, some planners would like clients to see them in that light.

I was one of the professionals interviewed for the article, which discussed planners providing emotional support for clients and building long-term relationships with them. It also addressed the impact these services have on client retention rates.

My firm's client-centered services focus on clients' emotional as well as financial well-being. Still, I was uncomfortable with the tone of part of the piece, especially statements like: ". . . advisors are serving as thinking partners, therapists, surrogate family members and community organizers" and "Some advisors set out intentionally to become part of the client's extended family."

Some of my unease came from one essential word that was missing from the article: integrity. My guess is that for the advisers quoted, integrity is such a given that they didn’t think to mention it. Supporting clients' well-being with services like financial coaching only serves clients well when it is built on a solid platform of professional skill and integrity. The only way to build the trust that is such an essential aspect of comprehensive financial planning is by being trustworthy.

Both clients and planners need to be fully aware — not just at the beginning of their professional relationship, but as they work together over time — of the importance of that essential foundation of integrity and skill. It has to be maintained through transparency and professional safeguards. Otherwise, a "family" relationship could obscure an adviser’s lack of knowledge in a particular area or make it very hard for a client to question advice that may not serve them well.

To take this one step further, it's wise to remember one of the reasons unscrupulous con artists are able to fleece unwary customers out of millions of dollars. They have honed the ability to manipulate people's emotions to persuade customers to trust them, and they then abuse that trust.

Also a matter of integrity is the question of whether it's even appropriate for planners to "set out to become part of the client's family." This has the potential to lead to a manipulative and patronizing view of clients.

Serving clients' best interests in a fiduciary relationship is the opposite of viewing them as customers to be sold a service. Planners who "sell . . . the relationship," as one adviser quoted by Nason put it, run the risk of putting their agenda and their goal of creating a relationship ahead of the clients' agenda and goals. There is nothing wrong with wanting clients for life; such long-term relationships can certainly serve clients well. But those relationships are built, not sold.

One of my clients who read the article told me: "I don’t want a planner to set out to 'become part of my family.' I want a planner to provide an impeccable level of service and trustworthiness that invites me to start thinking of him or her as 'family' — eventually, if that is comfortable for me."

This, I think, is at the heart of client-centered fiduciary planning. Over time, advisers might become 'family' because of their integrity, advocacy, or chemistry, but such close relationships should always originate with the clients. Moving into such a position of trust has to be earned and only comes by invitation.

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Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the former president of the Financial Therapy Association.