<img height="1" width="1" style="display:none;" alt="" src="https://dc.ads.linkedin.com/collect/?pid=319290&amp;fmt=gif">
by Daniel C. Finley on Jul 24, 2018 9:00:00 AM

NAIFA Facebook NAIFA Twitter NAIFA LinkedIn

Understanding an Advisor's Boundaries: The Reality of Responsibility

The Reality of Understanding is comprehending what is and is not your responsibility as an advisor. Learn your boundaries in a fluctuating market to clear yourself of stress. 


Understanding an Advisor’s Boundaries: The Reality of Responsibility By Daniel Finley


During a recent group coaching session, a successful financial advisor with 28 years of experience in the industry expressed her concern about having to be “right” now more than ever considering the volatile market. She said, “What my biggest challenge right now is…being right! I feel like I need to time this market perfectly. If I take a defensive position—by recommending that my clients put a large percentage of their money in cash—and I am wrong, I look bad. However, if I don’t get defensive and the market has another 900 point swing in a day, I also look bad.”


The rest of the group concurred with her concerns; I soon found myself unconsciously blurting out my thoughts by saying, “No! What you need to do is understand the reality of responsibility.”   “What’s that?” she nervously asked (as if hoping that something I would say could absolve her of the burden of having to be right all of the time.)


I went on to explain that The Reality of Responsibility is really about understanding what is and is not your responsibility and what your boundaries are as an advisor in a fluctuating market.


The following is a series of “realities”, better defining what financial advisors can use as guidelines:


Reality # 1:     You are Not Responsible For Carrying a Crystal Ball…


Timing the market perfectly is not your responsibility. Do not assume that you know exactly what will happen in the markets and when; it is stating the obvious that there are unforeseen events that could occur which could ruin your credibility.


Reality #2:     You are Responsible for Explaining To A Client Their Situation and Their Possible Risk(s)…


You must take full responsibility for keeping in contact with your clients whether via letters, emails, voice mails, phone conversations and/or in person. In addition, clients need to know if you believe that there are possible risks and why.


Reality #3:     You are Responsible TO Your Clients…Not Responsible FOR Them


In other words, your boundaries of responsibility lie in giving your clients recommendations, but you are not responsible for them taking your recommendations. How many times have you made a recommendation to a client only to later hear them reply “I want to think about it…hold off for right now…or want to “sit tight”?” Your clients are adults, they can choose to make their own decisions as along as they have been educated by you as their advisor; the final decision however does become their responsibility.


Reality #4:     You are Responsible for Knowing the Facts…


Part of your responsibility as a financial advisor is to keep up with current market events. Whether the market swings 900 points in a day or there is trouble/unrest somewhere in the world; you must know what is currently happening and how this is affecting the markets.


During volatile times, client concerns increase. One way to ease their concerns is for them to know that their financial advisor is up to speed on world events. Does this mean that you should everything about everything, no, but, it does mean that you need to be familiar with and versed in what may have effects on their investments.


 Reality #5:    You are Responsible for having an Opinion…


Clients need to know that you have a professional opinion.  They entrust their money to you and part of that trust entitles them to have an advisor who has done some type of due diligence to determine those opinions. Now, you may be right or you may be wrong, but we won’t know the answer until down the line. The point is more that you have an opinion in the first place and one that you feel strongly about because not having an opinion implies that you have not taken the steps to research what you believe and are sharing with your clients and that is just irresponsible.


Reality #6:     You are Responsible for How You Convey Your Message…


Often times advisors who convey their message—the recommendation— in an absolute way run the risk of taking on too much responsibility if they are wrong. One example might sound like this, “You absolutely need to get out of “XYZ” stock today before it keeps going down.” If the client takes this type of recommendation and the stock goes up…then, guess who is to blame? The advisor takes the blame for conveying the message in an absolute way.


However, if you communicate the message so as to share in the responsibility you reduce the probability of being blamed if it turns out that it was in fact the wrong decision.


Here is an example:


“Based on the information I have today, (explain the information) our analysts are recommending that WE sell out of “XYZ” stock…what would YOU like to do?”


Let’s take a look at the bold italicized words above:


  1. “I” signifies ownership (that you-as the advisor-have) of the information that you are conveying. Again, you are not responsible for knowing future information that is not currently known.


  1. “WE” signifies that you (as the advisor) also have a vested interested in the decision.


  1. “YOU” signifies that ultimately it is the client’s decision.




Reality #7:     You are Responsible Reiterating How You Conveyed Your Message


Some clients may have a tendency to not take responsibility for their own actions if those actions result in a loss. “Why did you make me sell out of “XYZ” stock? It went up after that!” is a prime example of a client not taking responsibility for ultimately making the decision. When, (and if) this happens it IS your responsibility to stick to your boundaries about what you are and are not responsible for.


The way to do this is to reiterate how you initially conveyed your recommendations. If you follow the “I, WE, YOU” format, you can remind the client that THEY made the final decision.


It is important to note that following these realities is not an exact science, but rather a method for you to understand what The Reality of Responsibility is thus, strengthening your boundaries.


Daniel C. Finley is a former financial advisor and current president of Advisor Solutions, a business development consulting and coaching service for financial advisors. Contact him at dan@advisorsolutionsinc.com or 715-262-2040.  To find out more about Advisor Solutions, check out their website at www.advisor-solutions.com or type "Advisor-Solutions" on Facebook.


Topics: Sales/ Getting Started/ Young Advisors Team (YAT)