The best way to remove a bandage, according to some, is to slowly pull the strip from the skin, being careful to minimize the pain. Others prefer to rip the patch as quickly as possible, trading more pain for a shorter duration. Delivering bad news is similar to having to remove a bandage from your own arm: Like a wound, the problem can’t be cured until it’s exposed, and no matter how you do it, exposing it is going to hurt.
Every financial planner is faced at some point in his or her career with the need to deliver disappointing news to a client. Many postpone such occasions as long as humanly possible, hoping by some miracle or lucky event that conditions improve before exposure is necessary.
This hesitancy is understandable; few people like to be in situations that may become traumatic, emotional, or fierce. However, professional standards and fiduciary duties require that planners make full and fair disclosure of all material facts. As a professional planner, you must put your clients’ interests first and that requires delivering bad as well as good.
Great managers and advisers are characterized by their willingness to be straightforward in the most difficult situations, a key element in building trust and respect. When you have to deliver upsetting news, follow these guidelines to increase your confidence, as well as your clients’ confidence in you.
1. Don’t Procrastinate
Unlike wine, bad news rarely improves with age. The longer you wait to deliver disappointing news, the more likely the situation will degrade further. Establishing regular and frequent communication with your clients reduces the likelihood of major surprises and irrecoverable mistakes.
2. Be Honest
Don’t soften, sugarcoat or minimize the severity of what you are communicating. Avoid emotions by dealing in facts. Your client may be unhappy, but will still look to you for direction and solutions. If you’ve made a mistake in judgment, admit it and explain how you propose to correct the situation. Remember that investing is a numbers game. As Peter Lynch, considered by some to be the greatest investment manager of all time, says, “Success in investing and in life depends upon dealing with failure, cutting losses early, learning from them and moving on.”
3. Give Hope
Have a solution—a plan that offers the greatest chance to recover from the bad news. Every physician knows that it’s every person’s natural tendency to continue to hope, even in the face of terrible odds. Financial setbacks can be as devastating as physical losses. Help your clients move through the stages of loss—anger, regret, sadness—to a new start with renewed determination and commitment.
With your new plan in place, follow through by constantly updating your clients on progress and managing their expectations. It may take time to recover the previous relationship and trust that existed before the disappointment. But continued effort, attention and honesty make the difference between failure and success of your practice.
What other tips can you suggest to deliver bad news to a client?
Former business exec and
contributor for the personal finance
and business resource, Money Crashers