As new financial products and accounts emerge, advisors are regularly looking for ways to expand their services and offer their clients the most relevant and updated products. But it isn’t as simple as picking the newest product — choosing what to recommend requires careful consideration and strategy.
Here are six questions to ask yourself when considering recommending a new product.
1) Does it fulfill my fiduciary responsibilities?
Your goal as a financial advisor is to help clients reach their financial goals. Your fiduciary responsibility is to always act with clients’ best interests in mind. Not every product is a good fit for every advisor or client. Due diligence protects you by ensuring you only recommend products that are in your clients’ best interests, not just the most popular accounts or those with the highest commission.
Recommending the right products doesn’t just create a strong client relationship — it builds on industry-wide ethical standards and strengthens your reputation.
2) What are the risks and liabilities?
When presenting the product or new account to clients as a potential option, you must clearly understand and explain the risks and liabilities. No product is risk-free, but each falls into varying degrees of liability. Every client has a unique tolerance for risk. As you look at new products, consider the risk level of your clients as a whole and then individually. Just because a few clients might shy away from risk doesn’t mean you can’t recommend it to other clients. But be aware of the risks and liabilities before you decide to recommend it, that way you can know if it will match your clients’ preferences and you can also present the risks and benefits.
3) What are the reporting requirements?
Many accounts have similar reporting requirements to stay in compliance. However, some products, especially foreign or crypto accounts, have unique requirements to stay in compliance. Before recommending a new product, be clear about what is required on the backend and if you have the knowledge and bandwidth to properly report the account and stay in compliance. Failure to report correctly can lead to legal and regulatory issues for you and your firm, plus a poor client experience.
4) What are the tax implications?
Investment accounts run the gamut on their tax requirements. A new product may look great at first glance but have high taxes. Make sure you have a clear understanding of the tax implications of the product so you can provide complete and transparent information to clients. This also includes how the new product will interact with their other accounts and investments and affect their overall taxes.
5) Does the product match my clients’ financial goals?
Clients choose to work with a financial advisor mainly to get help navigating the complex financial industry. They trust you to act with their best interests in mind and recommend products that will help them reach their goals. As you consider recommending a new product, consider your client’s goals. If the bulk of your clients are preparing for retirement, a riskier product aimed at young professionals won’t be a good fit. Similarly, a product designed for retirees won’t meet the goals of clients who have decades until retirement. Recommending the right products requires understanding your clients’ preferences, lifestyles, and financial goals.
6) Does the product fit into my current offerings?
Clients choose their financial advisors for a variety of reasons, including their experience, relationship, client experience, and digital tools. But they also likely factor in your product catalog or what you frequently recommend. When adding a new product, ensure it meshes well with your current offerings. Your firm may specialize in products for a certain demographic of clients or only support investments in environmentally friendly companies or other causes. Recommending a new product that doesn’t align with your current offerings can be jarring for clients and potentially weaken their trust in you. If the product doesn’t align with your firm’s values, priorities, or current goals, it could come across to clients that you don’t have their best interests in mind.
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