Clients who ‘cheat’ on their advisors

By Rosemary McCracken | November 18 2013 07:04PM

Some clients are reluctant to disclose the full extent of their assets to their financial advisors. And some advisors may discover that they are not their clients’ only advisors. They have, in fact, divided up their money between multiple advisors, believing it will be safer split up.

“Some people still adhere to the old adage, “I don’t want to put all my eggs in one basket,’ ” said Barry Desrosiers, financial planner, investment and retirement planning, BMO Bank of Montreal in Calgary.

Clear communication about the advice and other services your company can provide is key to building a client’s trust and consolidating his assets, Mr. Desrosiers added. “In my first meeting, I tell clients that at BMO we have mutual funds, stocks, bonds, and we do estate planning and business succession planning. The sheer diversity of what we can do for them will often reassure them that their assets will be properly diversified.”

Having more than one financial advisor working independently for an investor actually accomplishes the opposite of diversification, noted Eric Liu, a financial advisor with Edward Jones in Vancouver. “It can result in duplicating investments, being over-concentrated in some sectors and asset classes, and therefore at risk in down markets,” he said.

Larry Distillio, director, financial advisor business management at Mackenzie Investments in Toronto, said the client always has the right to work with whomever he or she chooses, and that includes multiple advisors. “Two advisors might actually complement each other,” he said. What is important is that the advisor know what assets the client holds and how they are being invested.

He suggested drawing up a commitment and partnership agreement – either in writing or as a verbal agreement – whenever an advisor and a client decide to work together. “The client will agree to full disclosure of his assets; to be true to the financial plan; and to contact the advisor immediately in the event of anything on a list of life-changing events.”

Mr. Distillio added that one way to address the question of whether a client is working with other advisors is to ask about the competition. “‘Are there other advisors who want to work with you? If so, what have they offered you?’ That may prompt them to tell you about any other advisors they may be working with.”