Regardless of the approach that you take in dealing with clients, the chances are that sooner or later you will encounter someone who fits the profile of a seriously dysfunctional client. Knowing how to spot customers in this category is a critical skill that can save you time and grief - and possibly arbitration or other legal entanglements as well. While it is not always possible to accurately judge someone's character based on only one or two meetings, in this article we'll cover a number of behavioral warning signs that should stand out to planners if they are exhibited.
While a difficult client may simply have unrealistic expectations about customer service or investment performance, a truly dysfunctional client may display the following symptoms:
- Complete dissociation between verbal expectations and psychological profile, or goals or fears that are totally disconnected from reality
- Radical moods or paranoia
- Major delusions in which the client believes reality to be nothing like what it is. This can manifest itself when a client listens to and agrees with everything that you say in one conversation, then denies that the first discussion ever took place or that you ever said this or that the next time you talk.
- Constant victimization - no matter what happens, the client is always the victim of circumstances and is in no way responsible for what happens to him or her.
- Abusive or manipulative behavior - when a client tries to threaten or intimidate you. In this case, it is imperative that you hold your ground. Failure to do this gives the client an opportunity to take control of the situation, which can be disastrous.
Let's take a look at a fictitious client-planner scenario that explores this issue further:
Example - A Dysfunctional Client-Planner Relationship
Tom is a planner with a thriving practice somewhere in the Midwest. One day, a prospect is referred to him for a consultation. She arrives with an armload of material and begins talking nonstop as soon as she comes in the door. She continues this way for almost two hours, verbally battering Tom with the sordid history of her family and how they are all trying to cheat her out of her portion of the inheritance from her newly-deceased father. She asks Tom to coordinate an estate plan for her that will prevent any of her relatives from bilking her out of her rightful share of the estate, and also to create a portfolio that will give her peace of mind while providing steady income. She does not allow Tom to see any of what she brought with her, but holds it tightly clasped on her lap during the entire meeting. Tom dutifully has her fill out the necessary paperwork as well as a questionnaire profiling her style of investing.
Two weeks later, Tom receives a check representing the woman's inheritance from her father. However, Tom has some reservations about how he should invest the woman's money, because her profile indicates a much higher risk tolerance than she indicated to him in their initial discussion. Tom decides to call the client in for further discussion on this matter.
The woman misses her appointment by almost an hour, then bursts into Tom's office in a rage. She begins screaming at Tom's secretary, then at Tom, accusing them both of conspiring to cheat her out of her inheritance. She informs them that her lawyer will be in touch with them about a lawsuit in the immediate future. Finally, she storms out of the office before Tom can offer to refund her money.
Difficult Vs. Dysfunctional
From a professional perspective, a new client who tells you horror stories about a broker who tried to cheat them could be an early warning sign in itself. Of course, it is possible that the client actually did get cheated, but pay attention to how the client tells the story, and check the story's plausibility. If a list of rational facts, documents and events is given and the client seems to be thinking clearly, then you are probably hearing the truth. If not, you may need to begin evaluating whether this client is worth retaining.
This type of behavior should be differentiated from merely being neurotic or having an eccentric behavior, which is much more commonplace. For example, a client who insists on picking up her investment check every month in person instead of having it mailed or deposited because she doesn't trust the bank or post office cannot be classified as seriously dysfunctional based on this characteristic alone.
Dealing with Dysfunctional Clients
While being able to recognize seriously dysfunctional clients is helpful, knowing how to deal with them once they are in the door is much more important. The answer to this dilemma is simple and it comes straight from your license textbooks: treat them as you would any other client, and do what's right for them in all situations.
An important caveat to this is to absolutely document everything that a dysfunctional client tells you, so that you can show it to them later if they deny ever having told you this or that. Make certain that the client has signed all pertinent disclaimers and consent forms, so that you are covered legally if your client turns against you. A key issue to remember is that most customers in this category are likely better off taking their business to a bank, where their principal and interest are guaranteed. Chances are that a customer who cannot deal with reality will be unhappy with the performance of his or her investments regardless of what kind of return they are getting.
Going the Extra Mile
In some cases, a discreet inquiry about a customer's background may be in order, if it can be done circumspectly. But even if this is not possible, there may be times when it could be appropriate to refer a client to a clinical therapist or counselor. For example, a client that has been the victim of a traumatic event and has subsequently received a large settlement may not be in an appropriate frame of mind to make major investment decisions. A gentle suggestion to take some time to heal and recover may be the most direct way to fulfill your fiduciary obligation to such a person.
The Bottom Line
Every financial planner will have to face difficult, unreasonable and eccentric clients. But seriously dysfunctional customers warrant special attention, and planners who attempt to do business with them must seriously consider what may end up happening as a result. No amount of commission or fee income will justify a messy court or arbitration battle and the resulting permanent blemish on your professional history.