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We are expected to be 100% honest with clients, and total honesty with clients is a wonderful concept but 100% honesty in all things with our clients would kill the relationships and kill the industry.
Don’t get me wrong: I believe in full transparency and ensuring consumers get all the information and us being truthful. Being transparent however is not the same as “being honest” is it? “Honest” is telling it how it is. “Truth” is not misleading and being factually correct. “Transparent” is holding nothing of significance or consequence back. But market participants mix up the meanings between honesty, truth and transparency and that creates a few problems for the market as a whole, especially with the increasing emphasis upon “honesty”.
The first problem for us is that we cannot afford to be 100% honest in all things. We cannot always say, or tell it, how it is. Consumers could not cope with that level of honesty at times.
The second problem is that the same expectation doesn’t apply to the consumers themselves. There is no realistic expectation that they will be honest all the time with us.
The third problem is that there are market participants who benefit from encouraging consumers to think that it is their feelings which matter most. Not the contracts they have or the terms they agreed to, but whatever their “feelings” are at some undefined point in the future.
For all the focus upon the industry and its practitioners being honest and transparent with clients and the (at times) excessive emphasis upon consumer rights is that the consumers themselves have a few obligations too. I am not talking about their duty of disclosure of material information type of obligations here. Legal obligations to disclose material facts are reasoonably well covered in law generally. But moving beyond the initial engagement the focus upon consumers being honest at THAT point, it seems their obligations to be totally honest thereafter are pretty tenuous.
Advice of any sort doesn’t work without ongoing co-operation and involvement from consumers and it is patently unfair to consider that somehow everything which results in a dissatisfied consumer should be laid at the feet of an adviser. Yet that is how it appears to be evolving with the increased emphasis upon consumers rights and access to complaints or redress bodies, and decreasing emphasis upon the personal responsibility of those same consumers..
An insurance contract doesn’t pay out because a consumer would like it, even if the consumers claim was not a covered condition? Have a crack at the adviser.
An investment portfolio doesn’t continually increase in value and exhibits some volatility…exactly as the consumer was told to expect? Have a crack at the adviser.
It turns out the consumer can’t afford to repay a loan when interest rates moved? Have a crack at the adviser.
Perhaps unsurprisingly given that Disputes Resolution Schemes and complaints bodies are actively advertising “have a crack at the adviser….it costs you nothing“, consumers think they have the right ot have a crack at the adviser over anything. Even the inane, utterly vexatious, or preposterous. Frankly the market regulators should be hauling some of these disputes schemes and complaints bodies folk in for questioning over the way they are misleading consumers into thinking that they have a right to have a crack over anything and that the consumers can themselves be somewhat economic with truth and honesty, because THAT type of messaging is misleading.
Let’s focus on the honesty issue for a moment. Perhaps by considering the things advisers might say to clients if we were 100% honest all the time. We’d actually be saying things like:
- This wouldn’t be a problem if you had done your part of the work and filled out the forms.
- What do you mean you didn’t realise you had to tell the insurer about the time you broke your neck? I told you verbally twice about disclosing medical history, you signed a declaration saying you’d revealed everything, and then I copied that declaration to you with a letter specifying that you had to reveal everything which might be significant – and now you say it is my fault that it wasn’t disclosed?
- Of course you have cashflow issues: it is because you’ve got the self control of a toddler and you keep spending more money than you have. Grow up.
- This is the 5th time I have told you how to resolve this, but it is not what you want to hear is it? So you are just going to keep asking in the vague hope that someone will tell what you want to hear, not what is real. Grow up.
- You just want someone else to be responsible for your problems don’t you? Grow up.
- I told you not to cancel that policy, and I told you why. Nevertheless you did and now you want to blame me for it being cancelled? Grow up and take responsibility for your own actions.
- We spent ages figuring out what risks you were comfortable taking and what your goals were, and then designed a plan according to YOUR stated objectives and tolerance. Now you aren’t happy with market returns and think that is my fault even though we explained that this was likely to happen 3 times before you were going to being drawing down the capital…all that has changed is YOU changed the investment timeframe from 20 years to 8 months. Of course you would have had different advice if you’d been honest about how important short term fluctuations were to you…so get real.
We could go on with dozens of examples, however imagine writing a letter to some of THOSE longstanding clients which was totally honest?
“Hi
You may not be aware that the laws governing the professional obligations of financial advisers have been changed. We now have to be 100% honest, regardless of how that might make you feel. So, I’m probably totally wasting my time and effort trying to help you yet again but what the hell…let’s give it one final go.
Seeing as you have not returned one of my calls or kept an arranged appointment for a couple of years, nor read any of the newsletters and updates I send (because my analytics tell me you never open them) I appreciate that this focus on total honesty may indeed be news to you.
In effect, I now have to disclose anything and everything to you, whether you want it or not, with 100% honesty. That may be uncofmortable, but that is just how it is. so;
Your investment portfolio has been plummeting in the last year or so. The performance has been so appalling that you may as well be holding your investments in Russian Roubles right now.
By the way, you insurance programme that we set up for you is now ridiculously out of date as virtually every insurer has updated policy definitions and pricing, but you are sitting with a policy that doesn’t carry those advantages. Think of it this way; when we set that all up 10 years ago it was like you had come to me and said I have $20,000 to buy a car. We got you the best car we could for $20,000 at the time. But now, the prices of cars have continually fallen in real terms during that time AND they come with loads more features and stuff now that didn’t even used to exist…they are just better all round y’know? We just couldn’t have got you Apple Car Play included with the $20k version back then, but now it would be weird if we didn’t get it, right? The point is that you have no right to expect that somehow your old clunker has had Apple Car Play secretly installed by us for free during that time while you were out having wild saturday nights.
Why hasn’t it? Because just like we aren’t allowed to break into people’s cars to instal or take away things we aren’t allowed to just go along and make changes to your policies and investments all by ourselves either. They’re your things. YOU have to do something with them.
That’s where that whole “advice” thing comes in though. We try to give you sound advice so that these things remain valuable and work the way you wanted them to, but you actually haveto listen and then do something.
You haven’t cared enough to actually engage with the advice I wanted to try and give you when it began turning into a problem. Now before you moan about the fact that I have been receiving some ongoing servicing commission on the products we put in place for you during that time, and say that you didn’t get any advice in return, I want to let you know that actually the amount we received doesn’t begin to cover the hourly rate I charge if we take into account all the time we have spent merely trying to re-engage with you.
So, moving forward our hourly rate for working with you in whatever capacity you choose – taking advice, ignoring advice or complaining about the advice – will be $400/hour. Call whenever you like, and take as long as you like. But understand that these are our terms and we will enforce collection of the fee if you don’t pay it in full within 7 days of invoice. When we say “enforce” that means letting loose the debt collection hounds.
It’s all about fairness really.“
Total honesty is a wonderful concept, and perhaps with some of “THOSE” clients it would be useful. For most client relationships however tact is an essential component, as tact is what ensures that the honesty level is kept diplomatic and within the bounds of maintaining some form of ongoing relationship.
So the idea of total honesty in advice is actually wrong. No business relationships would survive the brutality of total honesty really. Compliance requires total transparency…and being honest with that transparency. That does not extend through to being openly honest about “anything” though.
From an ethical perspective there is no doubt that Truth matters and is an absolute requirement…from both parties. And there is the real issue; while we are expecting better and appropriate standards of honesty from the industry we should also not be losing sight of the need for better standards of honesty from consumers too. But I do not blame them.
To increase confidence and participation in the use of financial advice there has to be trust rooted in transparency and an appropriate level of honesty, and at present that is being undermined by the blatant promotion of free access to table groundless complaints by consumers. The parties whose business it is to hear complaints and award judgements clearly have a vested interest in drumming up as many complaints as possible, regardless of their merit.
That is an area where some behaviour controls need to be considered if we are going to increase consumer confidence in financial advice and elevate behavioural standards.