“It takes many good deeds to build a good reputation, and only one bad one to lose it,” Benjamin Franklin, the 18th century statesman, scientist and founding father of the United States, once said.
His words still hold true for advisers. Have you ever considered the damage that client complaints could have on your business?
An unresolved dispute could end up with a financial ombudsman, leaving your firm liable to compensate the complainant or pay a fine to the regulator. Alternatively, if a news story is published, the negative publicity could severely undermine your reputation.
As such, paying attention to client complaints should be a priority for any firm.
The impact of a complaint
Monitoring the types of complaints received and addressing internal processes to mitigate the risk they pose will create peace of mind.
The onus must be on building a business culture that values clients, embedding standard financial planning processes to ensure the provision of high-quality advice. This is essential to creating a sustainable business that delivers on its objectives.
Over the years, there have been many examples of complaints from clients who claim: charges and exit penalties had not been explained; selected funds had performed more poorly than expected; an investment had been mis-sold; or, an adviser had failed to adhere to standard financial planning processes or to adequately perform a suitability analysis.
In each case, a firm’s reputation and its ability to meet its goals is at stake. A complaint on any of these counts can undermine a firm’s capacity to retain existing clients, attract new customers or meet its financial obligations.
But there are also wider implications to consider. What about the emotional impact on the employees involved? Would trusted relationships continue? Would an adviser feel comfortable remaining with the firm? What would the impact be on an adviser’s family?
These concerns apply equally to clients. Would they be confident in the advice provided? Or that recommended investments would deliver on their promise? In addition, would they feel they had been treated correctly, and be comfortable enough to refer friends and colleagues?
Assessing and monitoring
Here are some examples for firms to consider when assessing their exposure to risk in the event of a client complaint and in the absence of a standard financial planning process:
- If reputation and unsuitable advice are not yet in your firm’s current risk management plan, add it. If it is, review the current controls and adjust where necessary.
- The financial planning process should be added to the firm’s operations manual and training should be provided.
- Senior management must monitor adherence to industry standards to track performance.
There must be monitoring of the planning process and of general business management information (see ‘Monitoring standards’ below).
It must also be used to assess the impact of any complaints on goals and profitability, including how many existing and future income opportunities were lost and how many new clients had to be sourced as a result.
Gathering this information takes time but firms would be wise to consider the alternatives: damage to reputation, a fine or compensating a client.
Reducing probability of complaints
What is the benefit of adhering to international governance standards, which is in effect just good business practice?
Clients feel valued and experience tangible evidence that the advice provided is based on a process that takes their unique financial needs and objectives into account and delivers on promises made.
This is underpinned by ongoing fair service standards. These are delivered profitably per client segment and focus on building long-term relationships and trust, significantly reducing the probability of complaints.
Referrals increase and this results in new business growth contributing to business goals and objectives. Research by engagement consultant Julie Littlechild shows 57% of clients referred a friend because they faced a financial challenge, not because their friend requested a referral.
In other words, the leading driver behind referrals is that a client has a friend in trouble and proactively reaches out to help.
Paying attention to what takes place in the business on a day-to-day basis means you can detect and manage risk.
The ultimate aim is to retain a strong, positive reputation and a thriving business that increases in value.
Monitoring standards
Planning process
- 65% – percentage of new business transactions that followed the required advice process
- 50% – share of these transactions that were monitored
- 28% – of those monitored, percentage of documentation that was returned to the adviser for proper completion due to insufficient evidence that the business process standard set has been met
- 11% – share that had serious errors, meaning the advice may not have been suitable and the wrong product may have been recommended
- 60% – percentage of the documentation returned in the past month that had not been completed according to the required standards
Business management
In terms of the general business management information, monitoring might look like this:
- Persistency per adviser during the past 12 and 24 months, to ascertain the quality of advice given
- Client segment where most lapses occurred, to assess client retention
- The number of reviews conducted, including number of new transactions based on changed circumstances, which also tests client retention
[MARK, THERE WAS NO SOURCE FOR THIS IN ARTICLE, BUT THINK IT NEEDS CLARITY, EG. ‘60% – percentage of the documentation returned in the past month’. 60% OF HOW MANY/WHO SURVEYED AND WHICH IS THE ‘PAST MONTH’?]
Further reading:
UK IFAs facing advice suitability review in 2019
By Mimi Pienaar, head of practice management, Masthead
