What happens when your clients become your friends?

Friends into clients:  I often write about the logic concerning why advisors should transform friends into clients and the difficulties encountered along the way.

But it often works the other way as well: Two strangers hit it off, a person becomes a client, then a friend. The personal benefits are obvious, and the business benefits can be substantial.

What it is and isn’t

Often the client and the advisor discover a shared common interest. They graduated from the same school. They volunteer side by side. They are wine fans. They visit wine bars and go wine shopping together. The spouses enter the picture. Lots of trust develops. You travel together. Life is good.

This is not about dating, where a stranger becomes a client, and the advisor asks them out or vice versa. That is a high-wire act. Yes, there’s the possibility you’ve found your mate for life, but if you break up, your personal problems will likely spill into your professional life. There could be unlimited downside.

When clients become friends – the good stuff

Your friend trusts you implicitly. You realize trust is a great responsibility and treat them with respect. Respect includes not bringing up business while watching the Superbowl in their house. The smart advisor lets the client know they aren’t bound by the same rule. Clients usually show reciprocal respect of your free time.

Here are three major benefits that come the advisor’s way:

1. Perspective. The friend realizes there are times when the advisor’s life can be tough. They see life from the advisor’s point of view. Years ago, the day the market crashed, my office phone rang constantly. When I got home, the phone rang. It was my best client. I immediately started to address what I perceived were their concerns. They stopped me: “That’s not why I called. I know when I invest I’m taking a risk. I wanted to be sure you are all right today.”

2. Volatility. It doesn’t bother them as much as it does other clients. They feel you have their best interests at heart and know what you are doing. They see the big picture. This includes underperformance, although they won’t be patient getting substandard returns forever. Also, they must get the same reviews you give other clients. You can’t skip them because you are friends.

3. Fee tolerance. When you have dinner out, you might split the check. You don’t itemize who had what. They understand the advisor is a professional and their advice has a value. They usually don’t push back on fees or expect a discount.

When clients become friends – the bad stuff

It’s been said people wear many different masks, depending on who is looking at them. When clients become friends, you have one less mask in your wardrobe. You must always be the consummate professional.

1. Client confidentiality. You know the same people. You help manage money for some of them. Your friend knows it because those friends said so. Yes, they talk about you! You can never say anything about their finances or investments, even if they push and it sounds trivial. “What was that stock you bought Fred last week?  I want to get some of that too.  He told me, but I forgot the name.” Your lips are sealed. Fred may never have mentioned the name.

2. Inside information. You know where they work and what they do. You know their investment temperament. They are a managed money client. Suddenly they want to buy short dated options on their own firm. You ask why. They look away and say, “Oh, it’s just a hunch…” This might be the time to remind them the SEC looks at abnormal trading in stocks shortly before a big move. You must put ethics first.

3. Bending the rules. You can’t let them sign their spouse’s name or place trades in their account without a Power of Attorney on file. There’s no guarantee your friendship will last, but the scanned document with the forged signature will live in the Cloud forever.

4.  Speaking out of turn. They may not push back on fees, but that can change if you say: “That’s why you pay me the big bucks.” You can’t make disparaging comments about other clients, even anonymously. They will assume you talk about them the same way.

5 outcomes that are good for business

Having a client as a friend often means you have an advocate too.

1. Enter the next generation. They introduce you to their children. They explain how you do great things for them. They encourage their adult children to open accounts with you.

2. Consolidating assets. They like and trust you. They see no reason for having more than one advisor. Although they realize some friendships end, they know the firm name is on the door. They are comfortable bringing over almost all their money.

3. Referrals. They are a referral machine. You get the parents, the neighbors — you even get the dog’s account. Oops.  I forgot. The dog doesn’t have an account.

4. Introduction to social circles. You get invited to their parties. You buy tickets to attend the same galas. They ask for you to be seated at their table. When I was an advisor and we visited clients who were friends at their country house, they introduced me to one of their friends. Their friend turned around, handed me a stack of statements and said: “You are now my new advisor.”

5. Office presentations. Sometimes they figure out a way to introduce you into their work environment through the opportunity to deliver a presentation in their conference room. It might be educational, but it gets you in front of new people.

Some people strictly separate their personal and business lives to the point where they become secretive. That shouldn’t be you. We can all use a few more really good friends.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry.His book, “Captivating the Wealthy Investor” can be found on Amazon.