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When 'Just Trust Me' Isn't Enough

Transparency is essential if you want to keep your clients' trust.

Helen Modly, 04/30/2009

You can't blame clients for being worried about the security of their investment accounts. Highlight these four points to reassure clients that their funds are safe from fraud.

Bernie Madoff and Allen Stanford made off with more than half a billion dollars of other people's money. No one knows yet where it all went or how much of it can be recovered for the investors who trusted in these two crooks, or in the numerous intermediaries who referred to them. The new administration and its regulators are busy beating their chests about how concerned they are and what a top priority it is to design a new regulatory environment. Our clients will be getting an earful of arcane regulatory concepts as the media continues to cover this developing process.

I suspect that the vast majority of our clients and prospective clients don't really understand the difference between a registered representative and a registered investment advisor. You may function in both of these roles, furthering their confusion. Maybe you also promote yourself for marketing purposes as a group of advisors under a broker-dealer's umbrella. You client knows you as an advisor with ABC advisors, but your business card says something about securities being offered by a completely different firm. Even worse, many of you have had your broker-dealers bought or merged into a completely different firm, some more than once.

Is it any wonder that your clients are asking themselves, "How do I know what is really happening with my money"?

Encourage Clients to Read Their Statements
So many clients have become numb to the market that many are not even opening their statements. One recent survey stated that the majority of clients who do look at their statements spend less than three minutes reading them.

Encourage your clients to really look at their statements to be sure that the beginning values and any deposits or withdrawals of funds or securities match what they believe should have occurred during the month.

Most registered representatives manage accounts without discretion, meaning that they must obtain the client's consent before making any trades. Most registered investment advisors manage accounts with limited discretion, meaning that they can place trades without specific consent. Depending upon your style of practice, highlight for your clients the protections that exist with either model. Transactions are either specifically approved or are blanket approved by the account application, giving the advisor limited trading authority or limited power of attorney.

Clients need to understand that even with trading discretion, advisors cannot transfer funds or securities to the accounts of others without written instructions or standing electronic orders.
Remind your clients that any deposit or transfer of client funds or securities should be reflected on their custodial statement for the account involved.

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