For more than a decade, lawyers in New York State have been required to have an “engagement” letter signed by each client to whom they provide legal services.  Other states have similar requirements or practices of having written records of the terms of the relationship between lawyer (or accountant) and client.  Similarly, investment advisors, generally, require clients to sign investment advisory agreements, setting forth the terms of their engagement.  While this trend has helped create some clarity about the advisor/client relationship, these letters and agreements often miss an important opportunity, that is, ensuring the actual “engagement” of the client in the advisory relationship.   Too often, the letters consist of boilerplate recitations of fees, summaries of services and outlines of how disputes might be resolved.  By failing to state the client’s responsibilities at the same time, the agreement codifies a relationship that’s imbalanced from the start.  Clients are lured into a passive role that serves neither client nor advisor well.  In this  “Building Bridges” column, I explore how to re-frame the client/advisor relationship by improving the engagement, or participation, of the client to achieve better results.    

 

What Term Means

There are many ways to interpret the term  “client engagement.”  It might mean something akin to the preliminary period in a relationship, in which two parties get to know each other better before finalizing a formal commitment, legal or otherwise.  This use of the term would be a helpful way to view the time and experience that it realistically takes to develop trust and rapport between client and advisor.  This, however, isn’t the way the term is applied in practice, and may be too limited a model.  Rather, the term is more often used in a, perhaps, less alluring sense, that is, simply employment for a project or set of services.  In this way, the engagement letter is primarily focused on what the advisor will be  “engaged” in doing on the client’s behalf.   This is essential to define the advisor’s role and clarify how the advisor will be held accountable; but it doesn’t go far enough, as it fails to cover the client’s engagement in the process.  The limited interpretation fails to ask, or answer, the questions about what the client will do:  How often will the client be available for the advisor?  What information will the client provide?  How much will the client share about personal goals, dreams, limitations and fears?  What is the expected timeline for completion of the client’s responsibilities?  What will happen if they’re not delivered or accomplished?  How will the client make sure that the advisor can do what the advisor has been hired to accomplish?  If these issues aren’t spelled out, misunderstandings may arise between the parties, which can result in discontent on the client’s part.

 

How to Improve Usefulness

One way to improve the usefulness of the client engagement letter is to spell out the client’s role and responsibilities in greater detail, either in the letter or in a separate agreement.  A client list of deliverables might include any background information the client must provide and a sense of the commitment that will be required in the process.  For example, it might include a schedule of dates for meetings or deadlines in the next year, together with the topics to be covered or issues to be explored at those times.  This could help the client be more prepared to fulfill her share of the work to be done and could clarify what outcomes can be controlled by the advisor and what can’t be accomplished without the client’s assistance.  In my experience, the most transformative experiences with private clients result from the work that the client does, rather than the advisor.  While the advisor must set up the conditions for progress to occur—by listening, advising and being available to adjust plans along the way—the client must do the real, exciting work.  Even something as straightforward as writing up a will can create a powerful learning opportunity for a client to explore values and goals, internally and/or with one’s spouse or family.  A client “to do” list might include scheduling an appointment with a potential guardian to share the client’s values and dreams for her children and to learn whether the guardian truly understands them.  Since the choice of a guardian is often the decision that holds up the execution of a will, encouraging this kind of conversation early in the process may result in a higher signing rate.  It would certainly provide more comfort to client and advisor alike that the final document reflects the client’s intentions.  As a corollary, it might enable the client to gain a deeper understanding of herself and the potential guardian. 

Client engagement is more important than previously understood or currently acknowledged in the private wealth industry.  An agreement that addresses the client’s role and responsibilities together with advisor expectations could go a long way to creating a more productive relationship and interesting opportunities.