Do Your Friends Want You as Their Financial Advisor?

Do Your Friends Want You as Their Financial Advisor?

Most people in financial services say that friends shouldn’t do business with friends. That being said, there are some undeniable reasons your friends might just be better off working with you than with some stranger.

“I make it a rule never to do business with friends. Thanks for asking all the same.”

 On the one hand, advisors are trained from the get-go to “go seek out your natural market,” yet when many of us approach friends and family, we get the cold shoulder, though they can be tactful when they say no thanks. Winston Churchill famously said, “Tact is the ability to tell someone to go to hell in such a way that they look forward to the trip.” Have you intentionally placed your friends off limits as prospects? Are you really doing either you or them a favor? Give it some thought.

Your Friends Might Just Prefer Doing Business With You

There is a long list of excuses that advisors use for not doing business with friends. I, for one, think most of those reasons are lame. Under most situations, there are convincing reasons people would, in many cases, insist on doing business with a friend.


Access to Information

Imagine that Warren Buffett told you that he was willing to manage 100 retail accounts. Minimums would be reasonable. This is a fantasy, of course. Here is the interesting part; suppose that you are the only advisor he asks to assemble these 100 people. Would you consider your friends? Would your friends say, “Nope, I don’t do business with friends?” Are you kidding me? They would beg you include them! They would remind you of your shared history and all the things that you owe them…! They would insist you accept their sister’s and their mom’s account too!

  • Remember: Access sells. There actually are famous investors on your companies’ managed money platform. They are associated with institutional money. Managed money = retail accounts. You can get your friends’ access to this expertise if your eyes are open. Why would you deny them the chance to benefit from what you know? I know, you must check “suitability” first, but that’s a step, not an excuse.


Products are Complicated

People are possessive about their money. They don’t want to overpay or suffer consequences of a bad decision when buying a product that’s hard to understand. Have you ever heard the joke: How is health insurance like a hospital gown? You only think you are covered! Everybody wants an advisor who will put the long-term goal of maintaining a friendship above the short-term goal of making a sale. If your eye is constantly and relentlessly on your clients’ outcome, if that is your absolute focus, why would you deny that to your dearest friends?


  • Remember: Education helps here. If friends casually mention they are confused about financial planning or insurance, let them know you can explain how it works, how the process can work for them, how to avoid extravagant fees. Discuss how insurance and investment companies make money; teach them as you might want them to teach you.


You Already Have Their Trust

You have a rich history with your friends. You attended college or worked at the same firm in your shared past. Your families might know each other from childhood. They have seen you in action. They know you are ethical. They trust you.

  • Remember: Never use the expression “Trust me.” Let friends know you have helped other people in similar situations. Say something like, “Let me know if you ever want to talk,” or, “Yes, I would love to tell you about what I do!”


Fabric of Their Lives

Because you are friends, you understand the context of their lives. Everyone feels their situation is unique and it is. Financial planning forms don’t ask: “How long do you intend to stay with your current spouse?” or “Are you proud of, or disappointed with, your children?” Friends want a person who understands them and truly has their best interests and that of their family at heart.

  • Remember: You can’t blurt out: “I’ve helped people just like you.” On the other hand, you could persuade them to talk by telling short, anonymous success stories aligned to their real life situation when they ask “How’s business?” You are friends…they will tell you. Why not help them?


Your Personal Attention

We all know about the 80/20 rule. In this context, your friends naturally assume your best clients provide the lion’s share of your revenue. Understandably, they get the most attention. Your friends will assume “Blood is thicker than water.” They know that you will give the same high service level to a family member or close friend with a fraction of the assets. Why not do it? Don’t you truly care about their outcomes too?

  • Remember: They know you are thinking, “I’ve known you for years, you will be an important client to me.”


You Are Familiar to Them

You know them and they know you. Are you old enough to remember the acronym “WYSIWYG”? It was a term from earlier days in computing for “What you see is what you get.” When a friend walks into a bank or investment firm, they likely get the broker of the day. Are they any good? Will they be around for the long term? Do their personalities align with yours? Lots of unknowns. They know you. You aren’t going anywhere. Do you want them to struggle, as you know they likely will, with the bank advisor of the hour, selling the product of the day?

  • Remember: You know that selecting an advisor is like buying fine clothing. You want a good fit. Lots of clients become friends of the advisor and it is also possible for friends to become clients. If you get along well and hold similar values, why not help them? Besides, it is all kept confidential, right?

Advice Is Impartial

You have long-term friendships. The investing relationships are relatively new. Your history together is based on the fact you will be straight with each other, although you often include some tact. They know you won’t withhold information because they won’t want to hear it. This frankness has great value. They know you will tell them the truth.

  • Remember: Being a person’s advisor is sort of like being a doctor. Diagnosing symptoms as early as possible is important. Don’t you always let your clients know as soon as you can what actions need to be taken? Your friends know you will do that with them too.


You Think You’re Great

They already like you. All things being equal, people do business with people they like. Actually, all things being unequal, they still do business with people they like. You know this, and it’s why some clients start off with small accounts and over time, transfer in more money to your management as they get to know and trust you more. They will pay slightly higher fees too. Likeability has a monetary value.

  • Remember: This is like dating. Try to court them. Make that extra effort for them just as you would any other client.


The Risk of Doing Business With Friends Is Too High

Maybe you place a higher value on the friendship than the business. You don’t want to risk that friendship. Should you walk away? Is that the right strategy? I say “No.

Why? Because your friends are going to do business with someone regardless. If problems develop and they lose 70% of their assets because of some bad advice, they will appear on your doorstep anyway. Then they will insist you take the account. Why not help them avoid the 70% loss in the first place?

You are their friend who is also a trusted advisor to people they likely know. But now they also hope you can “make them whole again.” Now you’re starting out with that earlier 70% loss, you will need to more than triple their assets to make that happen. Wouldn’t it have been better for them if you had been helping them all along?

  • Remember: Just take your friend on as a client from the beginning. If you are trusted enough to be called in to fix a problem later, you might as well be in on the front end so you can try and avoid the problem in the first place. Don’t your friends deserve the benefit of your expertise as much as strangers?

Look, I get it that not every friend relationship, nor every friend, will automatically make for a great advisor/client relationship. Keep in mind though, that just because you are friends doesn’t mean that you should automatically turn them away. Are you good at your job? Are you really, really good? Then why not open your doors to your friends and help them achieve their goals as well as those of your existing clients? Don’t they deserve a bite of the apple?

It’s just a thought… let your conscience be your guide.

How do you go about advising your friends?

Give me a call and let me know how you do it!