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Managing Client Greed

  08/03/10 14:50, by Len, Categories: Announcements, Financial Management, Risk Management

Source: Articles by Graham Earle of BDO Spencer Steward

Client Greed:
Something that cannot be regulated or controlled, but rather has to be strategically and proactively managed on an ongoing basis. Graham Earle, tax director: BDO Spencer Steward (KZN) Inc. maintains that client expectations need to be kept realistic and focused from the outset. If financial advisers fail to take this approach they stand the risk of eroding a client's capital base – and losing all professional credibility…

As South Africa's market becomes more bearish we're seeing a marked increase in client interest when it comes to investments being made on their behalf. Improved availability of information regarding investment options – ranging from “advice” to direct product selling– has resulted in consumers becoming more aware of their options and the likely returns on their investments.

This means significant things for financial advisers. As more clients start requiring them to justify investment decisions, advisers have to manage expectations more proactively than ever before. The irony of this increased awareness is that because of this greater perceived “choice” clients are more dependent on investment guidance than ever before. This makes working with one's clients to develop a realistic financial plan crucial, from both an investment and strategic point of view, as well as to help clients understand their investment.

Facilitating understanding of what one can reasonably expect one's investments to yield goes a long way in preventing a client's “greed monster” from surfacing. Whereas clients who have been kept at arm's length from their portfolio might not understand the relationship between their risk and return parameters, clients who have been involved from the outset will be more inclined to “stick to the plan”. They will appreciate they are working towards a long-term strategy, and that changing this midway or based on the whims of the market will significantly impact on their future returns.

Keeping clients' expectations realistic involves more than investing in guaranteed financial products. It has to encompass client education – demonstrating how one's assets, liabilities and income are linked, and how investments have to be strategic and based on their personal circumstances and situation. Honest communication is therefore critical in addressing expectations before they become unrealistic and driven solely by greed. The sooner one has these conversations, the better.

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