Communicate or get kicked to the curb

This article is part of a series of special reports entitled “The New Normal” appearing in the March 30, 2020, edition of InvestmentNews.

“What we’ve got here is failure to communicate,” Strother Martin, playing a prison captain, tells unruly inmate Paul Newman in the great 1967 prison drama "Cool Hand Luke" right after Newman's character steps out of line and gets whacked into a ditch.

As the health and financial crisis caused by COVID-19 continues to unspool, that’s the same message both financial advisers and the broker-dealers and custodians that work with advisers should heed. Or risk getting whacked.

If, at this critical point, communication breaks down between an adviser and client, the adviser will get fired. And if there's a meltdown in the back office or service center of a B-D or custody shop, those firms will be kicked to the curb as advisers take their business elsewhere.

It really is that simple, and that critical, to advisers and firms right now. No one knows how this crisis will end. So pick up the phone. Listen. Communicate. Execute the plan. Repeat.

The financial advice market knows this failure to communicate is happening in real time among its constituents. It happened 12 years ago during the credit crisis and market meltdown of 2008.

There’s plenty of anecdotal evidence. Back in September 2008, when the last crisis was in full eruption after Lehman Brothers collapsed into bankruptcy, a colleague of mine fired his adviser when it became clear he was dodging his phone calls. A feisty soul, my teammate pulled multiple accounts from the broker and his firm, a major Wall Street bank, and never considered bringing his business there again.

“Communicate, communicate and then communicate some more,” said Mark Casady, the former CEO of LPL Financial and now the general partner at Vestigo Ventures, an early-stage venture capital shop focused on fintech. “Advisers can do this in calls, texts or emails.”

“Customers want to know what their advisers think and why,” Casady said. “They want to experience their advisers’ confidence in the world returning to a more normal time. And small check-ins, like a simple message, count.” 

“It’s not more complex than that,” he said. “That’s how advisers build the relationship with clients and become their trusted adviser.”

Casady said the situation in 2008-2009 was similar to the current problems. “The banking system was failing and the fundamentals were poor coming into the crisis.," he said. "But this crisis is scary enough as it threatens our way of life and our mortality.” 

“I believe advisers have to get to this point with their clients,” Casady said. “Sure, it’s about their equity portfolios dropping but it’s even more about their way of life changing. Engage your clients at this deeper level and you will have a raving fan of your services.”

And just as advisers must communicate with clients right now if they want to keep their businesses going, the firms that work behind the scenes for advisers, the custodians and broker-dealers who execute trades and send out account statements, also must be proactive, promptly taking calls from advisers and executing their orders.

Custodians and broker-dealers can’t put their advisers on hold and expect to retain their business – and the revenue that generates – once the coronavirus crisis passes.

A dozen years ago, the goal at LPL was to help financial advisers face their concerns and also keep their spirits up, said Casady, who retired from the industry’s largest independent broker-dealer in 2017.

“Back then, the advisers would often call into LPL exhausted from the daily calls and constant energy drain of reassuring clients,” he said. “We would have a laugh and then they would go back to helping clients.”

Management owes it to their teams and advisers to lead by example and communicate during these dire times.

"Clearly this is a difficult time for the clients we serve, between the violent markets, COVID-19 and the future unknowns," said John Hyland, managing director of Private Advisor Group, which is affiliated with LPL and has more than 600 advisers. "That has created tremendous levels of concern. Our executive team has been working hard to connect with our advisers to make sure they are OK, personally and professionally."

Advisers, reach out to your clients right now. Firms, connect with your advisers. The next few months are likely to be as trying and difficult a time as this industry and our country have ever faced. Don't fail to communicate.

More articles from The New Normal:

Advice firms will move more workers home — by Jeff Benjamin

Remote regulation to add new hurdles — by Mark Schoeff Jr.

Investment styles will take on an active approach — by Sean Allocca

Expect an influx of new clients — by Emile Hallez

Lower valuations a reality for firms — Ryan W. Neal