The Dynamics of Saying “I’m Sorry” to Clients

People make mistakes. And when the mistake maker is a financial advisor, and the error affects a client, experts say a clear and unambiguous apology is called for.

“It’s about building trust,” says wealth manager Howard Hook of EKS Associates in Princeton, N.J. “The one thing we need in this business above all others is trust.”

But if you think common decency and enlightened self-interest make the issue a no-brainer, advisor coach Kathleen Burns Kingsbury has news for you. “Some advisors are reluctant to apologize,” she says. “It’s anattitude of, ‘I can’t admit to a mistake, I’m the expert.’” And Faith Read Xenos of Singer Xenos Wealth Management in Coral Gables, Fla., says apologizing can be tricky from a compliance standpoint, especially at large firms. article2A big-firm advisor may want to do the right thing byfessing up and taking steps to mend the rift, only to be held backby corporate procedures designed to keep any admission ofwrongdoing from coming to light in a legal dispute down the road. Then there’s the notion that some clients don’t want to hear “I’m sorry” from their financial advisor. Michael Pompian, who workswith rich families at Mercer Investment Consulting in St. Louis, writes extensively about behavioral finance. In his view, two of thefour main “investor types” he has identified process apologies better than the other two. “Preservers” and “followers” may accept contrition graciously, but “accumulators” and “individualists” are as likely to bridle. “They may understand that people make mistakes, but apologies don’t go over too well, ” says Pompian, whose firm manages around $7 billion. “They want advisors who seem strong and sure of themselves.” Yet even with that investor type, Pompian says owning up is the only option when an advisor makes a mistake.

A Clear Conscience

The main things advisors have to apologize for — and all these mistakes can potentially be costly — are trading errors, missed appointments and miscommunication, according to Hook, whose firm manages around $435 million. But he doesn’t think it’s appropriate for advisors to apologize “for what happens in the market.” He saystaking blame “for what I can’t control” is at odds with his overriding message about the need for a calm and consistent approach to investing in all market moods and cycles.

Xenos disagrees. “An advisor should apologize to a client when assumptions we make or our industry overall fails them,” she writes in an e-mail. For example, when the market crashed in 2008, the tenets of asset Faith Read Xenos allocation and modern portfolio theory didn’t provide the protection the financial-advice industry had at leasttacitly promised investors, according to Xenos, whose firm manages about $1.1 billion. “I think our whole industry should have apologized to clients” for that debacle, she writes. “But that never came, sadly.” Hook and Xenos don’t see eye to eye about what calls for compunction, but they’re on the same page when
it comes to the payoff for expressing regret. “The rewards are easy: client loyalty and trust that goes on for yearsto come,” writes Xenos. “Also, it helps you as an advisor clear your conscience and feel truer with the relationship.”

Apologies are trust builders only to the extent they’re heartfelt, says Scott Budge of RayLign Advisory in Greenwich, Conn., a firm with about $300 million under management. To win a client’s trust after a disappointment, the apology has to be “a genuine expression of remorse” that presents a plan for avoiding such mistakes in the future, he says. In his view, mea culpas that aren’t sincere and forthright can turn clients off permanently.

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