You’ve Got Your Friend as a Client: Now What?

That close friend became a client.  In your experience, you’ve had clients who became close friends.  Now it’s the reverse situation.  This might bring its own set of problems.  The answers to some might be surprising.

1. Demands on your time.

Who would have thought this would require so much effort!  She calls me all the time!  My best clients don’t call this much!  She insists on only talking to me!  It’s time to sit them down and say: “Stop calling so much!  Let me do my job!”  This is a bad idea. Try this:  There’s an another, unspoken problem here.  Your friend is worried you’ll try to present an idea after work on Friday after late night tequila shooters.  Try this instead.  Let them know you are friends and investing is the business part of the relationship.  You respect their personal time.  You will only get in touch about business during weekday business hours unless it’s something really serious.  Continue to explain they aren’t bound by the same rules.  If they have something serious on their mind and it can’t wait, they can call you anytime.  Different rules apply to them. Outcome:  They will likely agree to respect those boundaries, especially since it addressed their worry about late night investment ideas being slipped in between tequila shooters.  The flow of calls should diminish.

2. Balance in the relationship.

They are your friend.  You are giving them the service you give your best clients.  They have a lot less assets!  You know there’s plenty more elsewhere.  Why am I going to such lengths for such little revenue? Try this:  You are investing in the relationship.  You are showing the kind of service you give your best clients.  It’s highly unlikely they are getting it elsewhere.  The relationship is like a set of scales.  Initially the balance is tilted to one side.  You make many calls, they make few.  Then it evens out.  More assets arrive.  Eventually they are comfortable in the relationship.  They start calling you before they make serious financial decisions. Outcome:  They will likely transfer assets and consolidate accounts once they get comfortable with you in the trusted advisor role.

3. Reporting performance. 

Yes, the market can be volatile.  The people on the cable news financial channels seem to thrive on crises.  My friend calls and asks: “How am I doing?” and “How does this news affect me?”  They want values and reporting immediately!  I thought I was done with pop quizzes when I graduated from college. Try this:  Although you can call up account information online, these requests put you in the position of reacting, not acting.   However, you want to be responsive to all your clients.  Scheduled portfolio reviews can be the key.  You have one scheduled for them in four weeks.  We can address these questions then, but if this is really important to you, we can move that review date forward.  Although these reviews require time for preparation, you are willing to move the date forward if it’s important to them. Outcome:  The portfolio reviews you’ve scheduled are like mile markers.  They can see them coming up.  They may be agreeable to waiting for their full review at that time.  They may prefer you move the date closer, even a day or so away.  It should give you time to prepare.

4. Bending the rules.

This can be the most serious problem.  “Rules don’t apply because we are friends.”  They might want to buy the same investment you suggested for them in their spouse’s single name account.  They might want to sign their spouse’s name to documents because they aren’t available.  They want to make up numbers on required documentation.  Maybe a trade didn’t work out.  They want to undo the order.  “Can you claim it was an error?”  This is the thin end of the wedge.  If it happens once, it becomes acceptable moving forward. Try this:  You must be the responsible adult in these situations.  If they want to do trades in each other’s accounts, a power of attorney needs to be on file.  You are agreeable to getting them on the phone to OK the trade, but your friend can’t do it themselves without the POA.  Make up numbers?  A postal clerk has a great expression: “When you sign your name, you are attesting that everything above your signature is true.”  Signing someone else’s name is called forgery.  You can’t bend the rules. Outcome:  Your friend should get it.  You’ve introduced the risk of legal liability for them.  They may not be happy, but they should respect you.  There’s also the risk they may not be your friends forever.  Your “favor” can become your “problem” very quickly. Friends can be great clients.  You need to establish the rules of the road.