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10 ways to close the client expectations gap

Harry J. Lew

The great physicist Stephen Hawking once said, “When one’s expectations are reduced to zero, one really appreciates everything one does have.”

I wish more people adopted Hawking’s mindset, a man whose physical disabilities never prevented him from pondering the mysteries of the universe. Unfortunately, many people go through life with unrealistic expectations, which sets them up for disappointment.

This is bad enough when someone creates his or her own expectation gap. It’s even worse when a financial advisor fails to explain a product’s benefits, explains them incorrectly, or deliberately misleads people to make a sale. In these cases, clients with dashed expectations may file complaints and hire lawyers, forcing advisors to use their errors-and-omissions insurance. This is unfortunate… and unnecessary. By establishing proper expectations at the outset of the client relationship and managing those expectations over time, you will greatly reduce the likelihood of miscommunication and unmet expectations.

This is especially important because advisors work with people on money issues, which can be emotionally charged. Money comes to symbolize their hard work over many years to build a nest egg for their families and their hopes and dreams for the future. So when something unexpected happens to their finances, they often react with shock, dismay, and, all too frequently, anger.

The good news: advisors can prevent problems by properly setting and managing client expectations for the duration of the relationship. Here are 10 principles that can help you do just that.

  1. Make the sales process completely truth-driven. Don’t promise a benefit that isn’t included in the contract. Don’t exaggerate benefits. And be sure to carefully explain all provisions so there are no surprises later.
  2. Never “go rogue” by using illustrations that violate the NAIC Life Insurance Illustration Model Regulation. Only use company-provided ones.
  3. Make an extra effort to explain any contractual element that might create a financial penalty or additional cost in the future. This involves things such as surrender penalties on annuities and co-pays and deductibles on health insurance. Try to be thorough now so that the prospects won’t be taken aback later.
  4. Focus on exclusions and limits defined in the policy. Does it exclude coverage for certain types of losses or impose a ceiling on benefits payable under the policy? Be really careful to explain these issues right up front.
  5. For most forms of insurance, explain the conditions under which premiums can increase and/or coverage can lapse due to insufficient premiums paid into the policy. Prospects (and clients) should never be surprised if this were to happen.
  6. If prospect refuses to accept your recommendation to protect against a major risk, explain the implications of that decision and get the person’s signature on a waiver.
  7. Make sure prospects understand the medical exams in life insurance underwriting and the fact that their application might be declined or rated.
  8. Once the prospect becomes a client, put the person through a complete “onboarding” process where you explain future “touch points” and service procedures. If you provide formal quarterly reports on investment performance, explain the format of those documents.
  9. Nail down the degree to which you have full trading authority on investments or whether your role is advisory only. Again, you never want to be in a position of doing anything the client doesn’t expect.
  10. Explain how the client will be advised of account trading activity, including how to get online access to third-party custodian trading reports.

Finally, always remember that people process and retain information differently than you do. So be sure to check understanding frequently, use multiple communication channels, and make yourself available to answer questions at their convenience. Do this, along with our prior suggestions, and you’ll prevent your clients from falling into the expectations gap—and minimize errors and omissions problems down the road.

Harry J. Lew is Chief Content Officer, EOforLess. For more information on affordable errors and omissions insurancefor low-risk financial advisors, visit E&OforLess.com. For information on ethical sales practices, please visit theNational Ethics Association’s Ethics Center

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