In my book The Financial Navigator - Managing Your Success, I wrote a section which I called "The Cost of Friendship." It deals with the price people are willing to pay to maintain relationships with the people they perceive as friends.
I'm often reminded about the power of relationships when I'm making recommendations to prospective clients. I might find that their banker is overcharging them or their accountant is less than adequate, only to hear them say that they can't move their business because the person they deal with is nice or maybe even a friend.
Here's a common situation: For the last few months, I've been trying to get a client's corporation reorganized. This is something that is common practice if things have been set up incorrectly, or even to take advantage of new opportunities. The lawyer said they wouldn't do anything without instructions from the accountant. The accountant refused to be involved with any reorganization and instructed us to find someone else to write the letter of instruction. After going back and forth with both the accountant and the lawyer, I suggested to the client that the easiest and most cost-effective thing to do was change accountants to someone who could address all of her accounting needs. The client's response was that they were not comfortable changing accountants because they have a history with the accountant.
I admire the client's loyalty to the accountant, but what is the potential cost of this relationship? My immediate estimates are $5,000 - $10,000 for the initial work completed and another $2,000 - $3,000 per year moving forward to hire a second accountant to oversee and maintain items not covered by the existing accountant.
Being in the service industry, I understand loyalty, but sometimes I have to question where loyalty ends and one's self-preservation begins. You have to be a "nice" person to deal with the public. That's part of the job. If someone isn't nice to you, I would hope you wouldn't work with them, so let's take "nice" off the table. When dealing with advisors, an important consideration is competency. If the person you're working with isn't competent, how much is it costing you? Is that cost worth maintaining that advisor? Then there's the question of fees and interest. If you're paying more than you should, is it worth it for you to stay with the same institution (or advisor)?
Bankers, lawyers, accountants, investments advisors, insurance salespeople and financial planners all know that managing relationships is critical to success. What you should know is that many of these same individuals are more than willing to take advantage of their relationships if given the chance. They know that most people don't like change and as a result often refuse to change even when it's costing them a significant amount of money.
Imagine lending money to a friend without them repaying you. Would you continue to lend them money if you never saw a dime again? Would you still consider them a friend?
I frequently hear people tell me that they can't change because the person they're working with is their friend. My immediate thought is "if they're your friend, they wouldn't have put you in this situation." I guess sometimes it's worth it to spend a little extra to maintain a friendship (if one exists), but shouldn't you at least know what that cost is?
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