Saying “it’s my fault” could void your E&O coverage!

By Martin Beaudry | November 20 2003 02:52PM

Empathize and sympathize. Ask how you can fix the problem. If it’s your fault, though, leave it at that. If you admit it, you may be void your errors and omissions insurance coverage.

Everyone is human, and everyone makes mistakes or has things spin out of control. Stock values crash inexplicably, and miscommunications are often blown out of context. As an advisor, what do you do to keep your angry clients? The Insurance Journal called industry participants with that very question.

When a client accuses you of making an error, the first thing to consider is the severity of the situation, says Jim Bullock, registrar at the Peel Institute of Applied Finance. If the situation involves significant sums of money, and could in any way turn into a lawsuit, taking responsibility for the error could void your errors and omissions insurance (E&O) coverage.

This was one of the topics addressed during the E&O conferences presented at Peel’s Fall Symposium this November in Toronto.

Advisors must understand that admitting guilt could give their E&O insurer the grounds to cancel their policy, warns Harold Geller, a lawyer with Milton, Geller LLP, and keynote speaker at the Peel Symposium.

Mr. Geller says the E&O insurer would void the policy because an admission of culpability undermines the insurer’s capacity to evaluate and negotiate the claim settlement.

“It is not your position to admit liability,” concurs Mr. Bullock. “You are turning all that over to the insurance company,” he says. “You can’t you mucking around and trying to make things good and then expect somebody else to clean up the mess and pay the cheque!”

If the client is angry and wants their money back, continues Mr. Bullock, you have to go to the E&O company and serve notice, “otherwise if they do sue you later, the E&O company will come back to say you didn’t tell them in time.”

The question of admitting or not can get very complicated with smaller sums of money. Mr. Bullock says, “It depends on the situation. If I do something to the client and it costs them $500 and I know I am wrong and they are only asking for $500, I will apologize, admit I made a mistake, and send $500.”

Tina Tehranchian, branch manager at Assante Capital in Richmond Hill, has been in the business for 12 years and oversees more than 500 clients. She has seen her fair share of irate clients.

Ms. Tehranchian counsels that you should be as proactive as possible with upset clients because it may actually turn out to strengthen the relationship.

Bradley Roulston agrees. He calls himself the quarterback for the managing general agency MAP Financial, and he handles most customer relations for his partnership.

“If it is a monetary loss and it is your fault, number one is to admit that it is your fault,” states Mr. Roulston confidently. “Then outline what you will do to correct it. If it is my fault and it is a financial thing, then most of the time I lean toward just paying it for the client. Most of the time it is something little, like $150. Just pay for it. Just get rid of it.”

Mr. Roulston continues, “It is not really going to cause a problem and clients might just see it as a more favourable move because they know you are looking out for their best interests should anything else happen.”

Down markets, mad clients

As well, clients are sometimes unhappy for the wrong reason, or they are unhappy unnecessarily.

Ms. Tehranchian says a common complaint has been about performance. The recent market conditions have been brutal and drawn out. Many clients with aggressive portfolios took a big hit, and may now be looking for answers.

“As an advisor you need to keep clients focused on the long term,” says Ms. Tehranchian. “That is the challenge: trying to put a positive spin on a bad situation.” She advises that you use lots of charts showing specific long-term examples of the healing powers of time.

At the same time, though, let the negative events be a reality check for your clients, she says. “No advisor has a crystal ball,” she notes, and often clients have an unrealistic sense of their own risk tolerance.

“You can’t you mucking around and trying to make things good and then expect somebody else to clean up the mess and pay the cheque!” — Jim Bullock

Be prepared

Ms. Tehranchian advocates doing all the work before things go wrong. When showing clients prospective returns, she says don’t just stop at the pretty upward sloping return. Go on to show related volatility charts as well. Try to prepare your clients in advance for those inevitable down periods.

Mr. Roulston adds that constant contact will take away 99.9% of problems. “If [clients] always know that you are there and they see you on a regular basis, nothing builds up because it just comes up on an ongoing basis,” he says. “They are not going to say I lost 15% or 20% of my portfolio because from the last time they talked to you it is only down one or two per cent. They know it is down one or tow per cent, but they know that it is part of a long-term plan that we talk about all the time.”

The rule of thumb today when somebody is not happy is to acknowledge that they are unhappy and sympathize without acknowledging any fault that you might have, explains Mr. Bullock. Then you ask, outright, “What can I do to help?”