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Would a doctor be pleased if 20% of her patients acted on her prescriptions and advice? Would you be happy if your car got you to your destination one-in-five times?
And yet 80% of financial planning recommendations don’t lead to action, according to a Forbes column. Our industry needs a fundamental reappraisal of how to create plans that translate into action and positive outcomes.
Your chance for lunch with Dan
This fall, Dan Richards will be hosting advisor roundtable lunches to discuss key challenges, share ideas and answer questions.
There is no cost to attend these lunches. Lunches are currently scheduled in Boston, New York, Chicago, Dallas and Houston – with other cities being added.
If you’re interested in more information on these lunches, please email [email protected]
Dan Richards
ClientInsights-President
6 Adelaide Street E, Suite 400
Toronto ON M5C 1T6
(416) 900-0968
The problem
The difficulty begins with the fact that today’s financial planning process is too onerous –for clients and advisors. Leading U.S. financial planner Michael Kitces has written that half of financial plans require over 10 hours of preparation time after completion of the discovery process, out of proportion to the complexity of most clients’ needs. As a result, only one in four financial plans are delivered to clients within 14 days.
And here’s what the author of that Forbes column wrote about the client experience:
If you collected a sample of financial plans prepared by planners from across the country, you may very well conclude the objective of financial planning is to take subject matter that has already confounded the advice-seeking client and make it even more baffling. As page counts, pie charts, graphs and projections mount, clients’ hopes of bringing clarity to their personal finances are dashed.
This is one reason that financial planning polarizes advisors like few other topics. Some view planning as an integral part of the value they deliver; others take the view that developing plans entails a big investment of effort that provides little benefit.
If you’re in the second category, there’s a solution at hand: Change your approach to financial planning, from what you call it to the process you take clients through and what you do with the end result.
Step one: Delete financial planning from your vocabulary
Let’s start with what we call the financial planning process and the end product. Last week’s column described how a successful advisor talks to prospects about creating a roadmap. Clients viscerally understand what a roadmap is – it’s what gets them from where they are now to where they want to end up. You don’t have to use “roadmap” – but use a term which is more active and concrete in its benefits than “plan.”
Step two: Make gathering information easy
One of the keys to giving clients a realistic sense of retirement expenses is getting a clear understanding of what they’re spending currently. But compiling a list of expenses is intimidating and easy to put off. After all, clients procrastinate the same way we do.
Never send clients home with a sheaf of blank forms to complete. Instead, have one of your staff sit down with them and help them through this. And look for shortcuts – remember, this doesn’t need to be exact to be useful. One advisor employs average expenses for current retirees as a starting point. Another uses average household spending from a national survey as a starting point, asking clients to identify for each category whether they think their spending will be higher, lower or about the same as the average amount.
Step three: Get clients involved
One of the reasons that many financial plans sit on the shelf is that clients don’t feel actively involved in the process of developing them. One advisor has replaced traditional financial plans with what she calls real-time planning. She meets with clients in her boardroom and attaches her laptop to a projector, highlighting the different decisions that clients can make. She’s able to input changes to things like retirement age, savings levels and rate-of-return assumptions on the fly and show the impact of these changes on the screen.
As a result, clients are much more engaged and take greater ownership of the process and the outcome. She still emails clients a summary of their conversation afterwards, but has dispensed with the bound financial plan that she used to provide – and finds that clients don’t miss that document in the slightest.
Step four: Adopt a scenario approach
One of the challenges to developing financial plans is selecting the rate-of-return assumption for stocks and bonds. Depending on who you listen to, over the next 10 years you can go all the way from a real return on stocks of 2% to the long-term historical return of 7%. Choose a number that’s too high and you strain credulity and risk a shortfall; pick a number that’s too low and you may have a dispiriting outcome that shows clients unable to come close to their goals.
Rather than picking one number, use the scenario approach that companies use for strategic planning. Have three cases – low, mid and high – with the clear understanding that these forecasts will be updated annually. By doing that, you can help clients focus on a realistic number, while building in the possibility of lower returns and the need to make some offsetting tradeoffs as a result.
Step five: Adopt a “less is more” mindset
Too many advisors view the quality of their plans based on the weight of the document, rather than what happens as a result.
The 20th century architect Ludwig Mies Van Der Rohe coined the expression “less is more” to describe his approach. The same applies to plans. Include the backup if you feel the need, but what matters is the five-page executive summary that highlights key conclusions and recommendations. Unless they really want to, clients don’t have to read more than the executive summary. And maintain momentum by ensuring that your follow-up meeting to review recommendations happens within two weeks of the discovery meeting.
Step six: Build updates into annual reviews
One investor recently complained to me that after spending substantial time to develop an in-depth financial plan, it never came up in conversation again with her advisor. The best plans are living documents – with clients having the clear understanding that forecasts will be updated annually based on the most current information.
Step seven: Blend pain and gain
Some clients will be able to hit their retirement goals with little difficulty and don’t need to make changes to what they’re currently doing. For others, regaining control of their financial future will entail making tradeoffs and hard decisions. Even in those cases, having a roadmap that offers a realistic prospect of hitting retirement goals will leave clients feeling more positive and upbeat.
One challenge to keeping clients on track is that while the gain is down the road, the pain and sacrifice is today. As part of your road-mapping process – provided that your clients on track – build in a provision for a reward for clients immediately after your annual review. Whether it is a week in the Caribbean or a long weekend in a nearby city, having something to look forward to helps maintain client buy-in.
Taking action
Some advisors are already doing many of these things; for others this represents a significant change. Don’t minimize the commitment that’s entailed to take clients through this process. But the payoff can be substantial in terms of the value you deliver to existing clients and securing relationships. Don’t assume that existing clients aren’t concerned about their financial futures. When doing reviews, say something along these lines:
“Recently, I’ve been talking to some new clients about the possibility of working together. They told me that they were concerned about being able to retire when they’d like and about outliving their savings. Is this a concern for you, even a little bit?”
Depending on what you hear, a follow-up conversation may be required.
I’ve written in the past about how specialization in your practice can position you for the future. An effective planning process is central to that positioning. As you think about your priorities for the next while, revisit your approach to financial plans. The time you spend on this could be one of your highest-return activities for the balance of the year.
conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written and video commentaries, go to www.clientinsights.ca. Use A555A for the rep and dealer code to register for website access.
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