All in the Family

Having friends, family and acquaintances as clients can be a great gig—if you do it right.

Not long ago, Vicki Han* heard that a neighbor in the big city suburb where she lives was changing jobs. So, Han, a financial advisor with John Hancock Financial Network in the Northeast, did the usual: She called her friend and asked for her 401(k) rollover. “I told her, don't give your 401(k) to anyone else,” she says. “I know I can do a good job for you.” She got it. And, when a long-time friend — their teenage daughters are pals — switched law firms, Han asked for her 401(k) business, too. That, she says, came to “a handsome amount of money.” For Han, approaching friends and neighbors for business is the lifeblood of her practice. About 80 percent of her book, in fact, comes from such individuals. Indeed, over the years, using a well-honed and subtle technique, Han has perfected the craft of nurturing relationships with friends and acquaintances who eventually become her clients. “There's a real art to this process,” says Han, who has about $20 million in assets. “And I think I'm the queen of it.”

While most advisors don't get such a high percentage of their business from friends, family and acquaintances, many do drum up at least a small chunk of change in that way — typically 5 percent to 10 percent of revenues, according to Stuart Silverman, CEO of Fusion Advisor Network, a practice management services provider to a network of financial advisors based in Elmsford, N.Y. Of course, for some novices, starting out in insurance companies and other firms, there's little choice in the matter: They have to hit the ground running with a list of potential prospects in their “natural market” and, invariably, that includes Aunt Gladys or Cousin Jack. However, for others like Han, tapping such prospects is an obvious conclusion when you consider that clients usually choose their advisors because they like and trust them. With that in mind, why not try to turn people you already know onto your business? “The really good advisors have a feeling that, if I'm the best at what I do, there's no reason for my friends to go anywhere else,” says Silverman.

On the other hand, there is the not-so-unreasonable fear that it's a surefire way to ruin a friendship. If, for example, you don't produce the right results, or your niece ends up being a spendthrift who ignores your advice, the resulting conflict could be tougher than usual to resolve. “It's very difficult to fire people in your family,” says Barry Kohler, an advisor with BDMP Wealth Management in Portland, Maine, who has about $35 million in assets. What's more, you may not be comfortable knowing all the gory financial details of your neighbor's divorce. Fact is, good friends often spend their entire lives not discussing how much money they make.

Even advisors who are highly successful at catering to friends and family acknowledge that it's tricky. First, it takes time to nurture the kinds of relationships with neighbors and other acquaintances that give them the confidence to hire you and reveal the details of their financial lives. You also have to make sure you're tapping people you're likely to work well with: Your wealthy but flighty college roommate, in other words, might not be the best bet. Once you get their business, you also have to fine-tune your working relationship. In fact, in many cases, advisors have learned the hard way — after a relationship was irreparably damaged — how best to handle these situations.

Taking It Slow

For many advisors who are pros at turning friends, family and neighbors into clients, there's one common denominator: patience. A hard sell just isn't appropriate, for obvious reasons. That often means not making the first move. Marilyn Littlejohn, a branch manager for Raymond James & Associates in St. Petersburg, Fla., with about $100 million in assets, is typical. “I don't approach friends,” she says. “If they approach me, I will pursue it.” But don't leave it to chance. You have to set the stage, creating an environment in which people will want to make that move. Specifically, make sure everyone — from your Uncle John to your next-door neighbor or your son's teammates' parents — knows what you do. Then, bring it up in conversation every once in a while, but without managing it in a heavy-handed way. Instead, focus on establishing yourself as a generally reliable type, the kind of solid individual anyone would trust with their money.

In some cases, you might feel comfortable broaching the subject before they bring it up. Chances are, however, you still will need to bide your time before doing so. That lawyer who gave Han her business when she changed firms? They had known each other for at least five years before Han decided to make her pitch. “You have to invest in the relationship, then you can ask in a straightforward way for their business,” she says

Prospecting among friends and neighbors in your area requires a special touch, especially if it's a close-knit community where there's no place to hide. You have to always be on the lookout — and on your guard. “People judge you on many little things, so you have to watch yourself very carefully, saying nothing to offend,” says Han. At the same time, make sure you have the right elevator speech, so you're ready when, say, the man who recently moved in across the street asks you what you do. (Suggestion: “I help people get rich — slowly,” is what Littlejohn says.)

It's best to figure out which type of relationship suits you best. Some advisors avoid doing business with close friends and family, but will approach, say, parents of the kids on their son's soccer team or the neighbor down the street. Take Kohler, the advisor at BDMP Wealth Management. He has a policy of never working with the former, but often uses a soft-sell tack with less-close personal contacts. On the other hand, Lechelle Moore, first vice president with SunTrust Investment Services in Nashville, who has about $140 million in assets, has no problem hitting up family, but finds that neighbors are a more delicate problem. “With family and friends, you can pretty easily figure out if they're a fit,” she says. “With neighbors, you don't have the same feel for how comfortable they're going to be.” She has just one client whom she considers a neighbor — but who lives about a mile away

Indeed, fit is a particularly important issue. That means being especially selective about the people with whom you do business. At the same time, as Moore knows, one advantage to dealing with people you know well is that you also have a better-than-usual understanding of what they'd be like as clients. Have you noticed how they tend to treat other service providers? Do they complain a lot? Are they too demanding? Most importantly: If you have a hunch it won't work, you're probably right. For example, several years ago, Michael Branham, a financial planner with Cornerstone Wealth Advisors, an Edina, Minn., firm with about $140 million in assets, began handling the account of a friend who had recently come into a small, but significant inheritance, ignoring a feeling that it wasn't a good move. Soon after, she and a new boyfriend started splurging and, despite Branham's warnings, ended up blowing the whole kitty. “I should have trusted my gut,” he says.

Managing The Relationship

Once you start doing business with them, set ground rules immediately. You have to let them know how you expect to proceed and the process for handling questions or problems. “You need to put on the client advisor hat as opposed to the friend or family hat,” says Silverman, “There's a big difference.” The bottom line: Set the tone from the first meeting and interact with them in the same straightforward, professional way you do with your other clients. And don't be afraid to come out and make recommendations or nix an investment move that your new client likes, but that you think is unwise.

Failure to do so can have unfortunate consequences. For example, several years ago, Moore started handling the account of a friend who preferred a riskier, less-well-diversified portfolio than was Moore's usual m.o. But, because the client was a friend, Moore failed to address directly her doubts about the tack they were taking. Ultimately, they made some changes, but not before several years of lackluster performance went by. “We had results that were embarrassing,” she says. After that, Moore started being more direct with friends and family about their portfolios.

It's all about managing expectations. Raymond James' Littlejohn, for example, recalls a good friend who came to her after she took a buy-out at her job, asking Littlejohn to handle her finances — with care. “She said, ‘I can't lose this money,’” says Littlejohn. So, Littlejohn decided to put together a conservative portfolio with municipal bonds, mutual funds and the like. Trouble was, it was during the height of the Internet bubble and her friend soon started asking to invest in Web stocks and get in on IPOs, offerings that Littlejohn would have had difficulty tapping, even if she'd thought it a good idea. Eventually, she lost the account — and her friendship was never the same.

The silver lining, however, was that Littlejohn changed the way she worked with other friends and family, making sure to set realistic expectations and provide some basic education, if necessary. For example, when a friend who runs her own business recently talked to Littlejohn about starting a pension plan, she immediately sent her several brochures on the topic before they had their first meeting. “If I take her money, I know she won't be clueless when we begin,” she says.

You also have to draw a clear line between your personal and professional conversations. It's best not to mix them. In other words, at a family dinner, don't engage in shoptalk. If your client-uncle insists on addressing the subject, try to steer the conversation away to something else. “I only talk business at a meeting,” says Craig DuVarney, who runs his own firm in Concord, Mass., with about $50 million in assets. “If I'm at a barbeque, I don't bring it up.” In fact, if you feel you'll have a hard time sticking to this separation of roles, that might be a sign it's not a good relationship to pursue.

Ultimately, even if someone doesn't turn into a client, there's a good chance that person might become something just as good — a reliable referral source. Four years ago, for example, Kohler had coffee with a neighbor, where they talked, among other things, about whether he could handle the man's money. Turned out the person wasn't a good fit. But, not long after, he referred a small business owner to Kohler, and the individual has since become a client. And Han recently went to a friend's birthday party where she met the woman's estate lawyer. They exchanged business cards and, not long after, the attorney gave her a $250,000 account. The bottom line: Friends, family and neighbors can provide the engine for your business. Just handle it with care.

*This advisor's name has been changed at the request of her firm's compliance department.

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