* Scandals can be an opportunity
* Don’t be too assertive in reaching out
* Don’t gloat about a rival’s scandal
By Jennifer Hoyt Cummings
NEW YORK, March 20 (Reuters) - When Wall Street misbehaves, it’s often a financial adviser who ends up on the hot seat, left to answer the public’s questions.
A scathing New York Times op-ed about Goldman Sachs by a departing executive last week marks the latest black eye for the industry. The latest embarrassment comes after toxic investment products, insider trading and Ponzi schemes already had shaken clients’ trust in the people who handle their money.
The headlines have hit close to home for advisers. Merrill Lynch advisers have had to field questions about woes at their parent company, Bank of America Corp, several times over the last few months. Last September, UBS Wealth Management Americas parent UBS AG had a $2 billion rogue trader scandal, which made even faraway U.S. clients nervous.
And it did not reflect well on Morgan Stanley Smith Barney advisers recently when a banker was arrested for allegedly stabbing a cab driver and another was allegedly linked to a prostitution venture.
The best way to navigate the bad press? Don’t call clients each time a new scandal breaks. Being prepared, however, can help turn a scandal into an opportunity. Advisers who arm themselves with talking points before skittish clients call can help turn that anxiety into a new level of comfort and loyalty.
The conversations can remind clients that they need an adviser to serve as a liaison to the complicated world of financial services.
“It’s a perfect opportunity to emphasize why they’re with you,” said Mike Kostoff, managing partner with the wealth management consulting firm The Kostoff Group. “Client anxiety is a good thing if you can help them manage it.”
Advisers who get in front of negative news by reaching out to clients may just end up informing them of something they did not care about or even know about.
For those in the insular world of New York or the financial services industry, it may seem like Greg Smith - the author of the now-famous public resignation - became ubiquitous last week after he said that Goldman had a toxic culture and a pattern of mistreating and cheating clients.
But the op-ed, in which Smith wrote that some colleagues referred to their clients as “muppets” - a British slang term for a stupid person, not Jim Henson’s beloved puppets - has not come up in conversations, said a half-dozen advisers interviewed by Reuters. One Merrill Lynch Wealth Management adviser based in the South said she had not even heard about the op-ed.
If you work at a firm that has been repeatedly hit with negative news, don’t make the mistake of thinking your clients are paying close attention. Don’t contact them unless the news is bad enough to make the average person worry about your firm’s financial health.
“It always seems worse from our perspective because we know more,” said Ed Friedman, a senior partner at the New York-based Friedman Consulting Group. “We live it every day.”
When anxious clients do call, don’t just wing it. Have talking points ready. If it’s your firm in the news, get the public relations department to help you figure out what to say.
As a first step, listen, and don’t be defensive. Start the conversation by letting your clients vent, which may be all they really want to do. Then address their concerns in simple language and avoid financial jargon, which will only make them more apprehensive.
Andy Tasnady, founder of the consulting firm Tasnady & Associates, said that clients mostly want to be assured of two things during the conversation: “Is my money safe?” and, “Can I trust the people and products from this firm?”
Address the first question by reiterating your firm’s risk controls and how client money is safeguarded.
How you address the second concern will depend on your business model. If you have a record of giving clients a balanced view of your firm’s proprietary products, remind them of that. And let clients know where your loyalties lie: You are a representative of your firm, but in the end you work for them.
Advisers may be tempted to capitalize on scandals that befall rivals, but this is dangerous.
Smith’s op-ed lambasting Goldman might appear to be great marketing fodder for independent advisers, who have long been outspoken critics of big Wall Street firms.
But using such a tactic could backfire because the general public is not well-versed in the differences between a broker on Wall Street and an adviser at an independent shop, said Michael Kitces, a wealth management expert and author of the blog Nerd’s Eye View. Clients could just lump independent advisers in with the subject of the criticism, he said.
If a rival firm’s scandal comes up in conversation, use it as an opportunity to highlight what you do right, not what your competitors do wrong, said Tim Welsh, president of the Larkspur, California-based consulting firm Nexus Strategy LLC.