On July 17 at approximately 3:30pm ET, this article was revised. A fourth point was added to the numbered list below. It begins with, "Finally, execute all the official documents..."
What’s gotta be done before the end of the day?
What happens next month if the rains don’t come as planned?
In the musical play “Giant,” based on the famous book and movie, Luz and Bick, owners of “Reata,” start each day at 5AM asking five questions about the management of their sprawling cattle ranch. They continue:
Which hand’s working hard enough and which hand is not?
What’s costing us money?
Who’s watching our land?1
These questions, translated to other walks of life, set out what a careful person is concerned about in terms of their money. Is there a plan? Is it still working? How are they doing, and are they going to be okay? What are they missing, either as opportunity or risk? What’s most urgent?
When starting a client relationship, how can you and the people across from you agree on which of these questions (translated to their life circumstances) you can help them with, and whether you are the right person for them?
Start by asking, listening and watching. Beyond just words, look for body language and pay attention to which topics most concern each person.
Ask people why they are seeking advice. In terms of the ranching metaphor from the questions at the beginning, some people are looking for a vet for their animals, some want help maintaining the fences, while others are looking for a new general manager or are even trying to sell the ranch and move into a new way of life. The best way to find out is to ask a lot of open-ended questions and then listen.
This dialogue goes both ways. Just as you want clarity from them, they have a right to clarity from you – about what work you do, and the roles you offer the people you serve. Several years ago I developed a list of different roles that financial planners and advisors may choose to fill. For example, in terms of investments, you could select specific stocks and bonds for a fund or account, select specific funds for a portfolio, develop an asset allocation strategy using various pre-set portfolios, or not handle investments at all and give more general advice on asset management or other topics.
The full list of 25 roles appears at the end of this article. Some will feel very familiar and appropriate, while others are not at all what you want to be doing. If you work with others on a team or in a firm, do you all provide similar services, or do you fill different roles and collaborate? Some clients will want something you do not regularly do, perhaps coaching or preparing tax returns. In that case you can begin to offer the service, pretend to offer the service (not a good idea) or help the client get the service elsewhere.
These two processes need to happen together at the start of the relationship (and be reviewed on a regular basis). On the one hand, determine what problem or opportunity areas they want to have addressed. On the other, decide who is going to be responsible for which parts of the process, in terms of analysis, understanding, time, effort and action. What is to be done, and how is it to be done? Both the advisor and the client have expertise – what is the most effective way to maximize the value in the relationship?
Once it was common for people of above-average means to have regular relationships with different professionals. There was a family doctor, a family lawyer, an accountant, a banker, a member of the clergy, and even a regular tailor and seamstress. People would learn how to work with those professionals – what to expect, how to pay for services, who to ask for what. Today, however, those traditions are much less common. The very rich may have a “family office,” but the idea of having people “on retainer,” in effect, is foreign to most people. Thus, when a financial advisor wants to create the kind of long-lasting intimate relationship that allows planning work to be maintained and monitored over time, neither the advisor nor the client often knows how to set it up satisfactorily.
There is a range of responsibilities for any type of issue. At one extreme, the client makes all decisions, implements all actions, and may not even want input from their “advisor.” Many personal and family issues could fall onto this end of the spectrum – the advisor can see a problem and the client is not interested in getting any opinions. At the other end, the advisor makes all decisions and takes all actions, and may not even inform the client, as when the advisor is the trustee of a “blind trust” set up for a public official. Most things fall in between, with values and decisions at one end and specifics and implementation at the other. It is very conducive for a positive long-term relationship if everyone can agree where the line is between the jobs of the client and the advisor.
A successful planning relationship requires four kinds of agreements, each of which can be in a separate document or at least should be clearly discussed:
- Define the scope of the relationship and the process that will be followed. Are you going to get involved with financial therapy and help them resolve issues around money, or are you only going to advise on the allocation of their retirement accounts? How long will it take, and who is going to do what parts of the work?
- If you are going to be involved in money management, create an investment policy statement (IPS) that defines their goals and resources, your approach to markets and asset allocation, perhaps a target allocation for their accounts, and the process of how investments will be monitored and managed over time. Your IPS is not a mere CYA formality. Instead, it allows you to teach your clients how you work, and show them that you take their money seriously.
- Use a relationship agreement to help set the general rules for how you will work together. What is your responsibility for doing the work, and what is their responsibility for participating and making decisions on a timely basis? Be explicit in who they will work with, how you will maintain their privacy, and how fast you will get back to them when they have questions. The relationship agreement sets promises and commitments on both sides in a clear manner, and increases the clients’ confidence that they will get what they want.
- Finally, execute all the official documents – RIA agreements, custodial agreements, asset transfer forms, IRA beneficiary forms, fee schedules, and all the rest. This process is often presented as a stack of papers, with many “sign here” tabs so it can be done quickly. A better strategy is for you to explain each form, especially in the context of the first three agreements, and with reassurance that you will be taking care of the action steps that are yours to do and involving them in decisions that they want to make. If they have agreed earlier that they have given you discretion to make portfolio changes, show them where that appears in the paperwork. If there is a portfolio that they will be managing, make sure they know how to make trades or give you instructions.
An important aspect of creating a relationship with trust is assuring, if relevant, that both spouses (or parents and children) are fully involved in the process. Often one spouse (frequently but not always the husband) takes the lead and leaves the other to watch. From the beginning of the conversation about goals and values to the signing of forms, pay attention to body language and solicit questions from both spouses, so they can both have confidence in the process and outcomes. This is similarly important – maybe more so – when dealing with the funds of an older person and his or her children or other guardian.
Richard Vodra, J.D., is the president of Worldview Two Planning of McLean, VA. He is retired from a 27-year career as a personal financial planner, and received the 2019 Lifetime Achievement Award from the National Capital Area chapter of the Financial Planning Association. He is an original member of the Nazrudin Project. He currently focuses on the linkages between financial planning, climate change, and resource constraints. He can be reached at [email protected].
Appendix – Advisor Roles
Here are some of the roles that planners may or may not choose to take on in a particular planning relationship:
[For each of these, ask yourself where you provide real value, whether you enjoy the work, whether you get paid adequately for doing it, and whether it is part of your core service. Then think about how you can help clients get the service if you do not offer it.]
- Technical expert (I possess knowledge and secrets)
- Money manager (I decide which things to buy and sell)
- Organizer (I assemble everything, put reports in order)
- Advisor (I’m the expert, you make the decisions)
- Paper processor (I handle the paperwork for you)
- Document creator (I do tax returns, estate documents, and the like)
- Validator – certifier (I tell you how or what you’re doing)
- Definer – explicator (I explain what complicated things mean)
- Record keeper (I keep track of what you own, tax basis, and the like)
- IT advisor (I help you link up your devices with your bank or custodians)
- Consultant (You seek my advice in a specific area)
- Strategist (I help you plan for the big picture)
- Leader (I define the tasks, you follow me)
- Mentor (You act, and seek my wisdom when appropriate)
- Permission grantor (I tell you if it’s OK to do what you want)
- Coach (I hold you accountable for progress toward your goals)
- Counselor/psychologist (I help you figure out why you’re stuck)
- Trainer (I equip you with specific skills)
- Teacher (I teach you what I know)
- Spiritual guide (I help you discover the deeper meaning of money and life)
- Coordinator - facilitator (I help everybody work together)
- Plan administrator – Trustee (I sign and file the documents)
- Blame catcher (I accept responsibility so you can act)
- Mediator (I help you and another resolve conflict)
- Designated grownup (As you learn, I’m watching out for you)
1 LaChuisa, Michael John. “Our Mornings.” Giant. Original Cast Recording, Ghostlight Records, 2013. Used by permission.
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