It’s normal to approach family members and close friends as potential clients when starting a business. But working as a financial advisor with people with whom you have a personal relationship has its risks.
When Keith Weber, a certified financial planner and president of Weber Consulting Group in Fort Collins, Colo., started working in a small brokerage firm in the 1980s, he and other advisors were encouraged to take on family and friends as clients. But that situation became horrible when a stock the firm had sold crashed, wiping out the life savings of many advisors’ parents, grandparents and in-laws.
So, here are a few tips to keep in mind before you take on family members and close friends as clients:
> Know when to say “no.”
For some, doing business with family and friends is taboo.
Business and loved one’s are like church and state, Weber says. Keep them separate.
“You’ve got your business, you’ve got your family and friends and hopefully never the two shall meet,” he says. “Things happen with the markets that you simply cannot control.”
For others, taking on family and friends as clients should be approached cautiously, but not ruled out entirely.
The fact that the prospect is a family member or a close friend should not be the determining factor in making them a client, says Roger Tuttle, president of Annapolis, Md.-based Tuttle Financial Advisors Inc. Instead, talk to them about the importance of financial advice and find out whether you would be a good fit — as with any prospect.
> Talk about risk
Before taking on loved ones as clients, discuss all of the risks involved.
Explain to the prospective client – and relative or friend — that there are certain things you can’t control, says Weber. For example, if the market suddenly takes a downward spin.
That’s an important conversation to have with any client, particularly with people you have a personal relationship with. It’s one thing for a client to blame you for a falling market; quite another when that client is your father-in-law.
> Reassure the client about privacy
Privacy can be a particularly dicey issue when your client is a relative or friend. Assure the client that the information you share will be kept confidential and not discussed over Christmas dinner. And be sure to keep that promise.
Says Tuttle: “Cousin John doesn’t want his Cousin Fred to know what he’s doing [with his money] and for you be a conduit of that information.”
> Make an extra effort
You will be influencing your family member’s financial future, so you must be willing to go the extra mile.
“You have to be at the top of your game when you’re dealing with [family and friends],” says Tuttle. That means working a little harder and putting a little more effort into their plans.
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