Advisors focused on financial planning might have a lot of explaining to do. That’s because some clients don’t know what financial planning is.
With growing industry competition—described by some as a race to the bottom in fees—and with more advisors outsourcing investment management, communicating the value of financial planning is becoming increasingly important.
“The advisor role starts before [clients] even contemplate a financial plan,” says Susan Latremoille, wealth advisor and director of wealth management at the Latremoille Group, Richardson GMP in Toronto. “The client might not even be aware they need a financial plan. Many aren’t—they just have questions about money and their lives.”
Monique Madan, principal at Monique Madan Consulting in Toronto, describes her typical clients as good earners with decisions to make. “They can’t necessarily afford to do everything,” she says, from aggressively paying down mortgages to maximizing registered accounts.
Though she’s confident the financial planning process will provide insight required for clients to make decisions, she’s also sensitive to clients being overwhelmed. “Because they earn well, they’re inundated with solicitation,” she says of her clients.
She favourably juxtaposes herself with the herd by telling clients up front that she won’t impose on them; rather, her door is open when they need her.
Latremoille tells clients that the financial planning process will provide answers to the questions they have, as well as provide insight to identify needs, goals and aspirations.
Winning over clients in discovery
Because many decisions don’t necessarily have a right or wrong answer, advisors must fully understand clients to guide their decision-making, says Ron Fox, CEO at Glidepath Portfolio Services in Toronto. That means understanding their values.
When values inform the financial plan, clients buy in and action steps become “justifiable to clients,” he says.
Clients’ qualitative characteristics, such as their motivations and attitude toward debt, are just as important as their quantitative ones, he adds.
Likewise, Latremoille says, “The quality of the plan is all about the conversation, and not just about the numbers.” Understanding client values helps with legacy planning, for example, she says.
Madan asks for clients’ raw data in advance. Ahead of the meeting, “I already know the context,” she says, such as being in a high tax bracket or paying child support. At the meeting, it’s time for the “soft stuff,” she says. “It’s a lot of listening.”
Latremoille says she guides clients through a conversation about goals, obstacles and opportunities. Discovery often highlights for clients the difference between them and their spouse, she says.
Madan finds a way to make both spouses comfortable with decisions. For example, she describes a couple in which one spouse invests relatively aggressively, to the other’s consternation. She puts each spouse’s feelings in context, verbalizing how each feels. She then makes suggestions to bridge the gap, such as implementing a stop-loss rule. It’s about making both feel better, she says.
Going live with the plan
After a financial plan is created, if it isn’t implemented, it’s a dead document, says Latremoille. “It’s the advisor’s role, working collaboratively with the client, to bring the plan to life through the implementation process.”
Amid myriad plan details, it’s the advisor’s job to identify gaps since the ultimate plan is created by a team of professionals with various expertise. For example, Latremoille recalls one client with conflicting clauses in their shareholder agreement and will, which were created by different legal counsel. Other things to beware of are how tax changes affect the plan, and what insurance is needed, including long-term care and critical illness.
Typically, the plan will include action steps and strategy that require monitoring. Objectives range from getting organized to meeting with referrals as required—for example, getting legal counsel when updates are required to wills and powers of attorney.
Monitoring and updating is part of the financial planning process, says Madan. “It’s in my letter of engagement.” She generally meets with clients annually—unless life happens. Having told clients she’s available when needed, they re-engage as necessary.
“People will reach out to me when they have to make a fairly large financial commitment,” like renegotiating a mortgage, she says. “They re-engage anytime something is going to affect their cash flow.”
After discovery’s deep dive, it’s relatively easy to put subsequent decisions in context, she says, and client questions can be swiftly dealt with. (Beyond personal circumstances, Fox says advisors should also be on the lookout for changes in client values.)
But things don’t always run smoothly. Sometimes, at yearly meetings, clients haven’t made progress.
“Do people always comply? Heck, no,” says Madan, adding that fewer than half of clients initially follow through with annual meetings.
When she contacts them, most say they avoided the meeting because they’re embarrassed. Madan suggests they come in again to figure out how to proceed. She’ll ask them directly how she can help. Sometimes clients need tighter deadlines, she says.
Latremoille follows up to find out if unengaged clients are committed and willing to continue to put in the work. If clients aren’t responsive, “sometimes we just let it go,” she says. Most clients are motivated because life’s given them a wake-up call, forcing key life decisions and planning for retirement, she says.
Not to be forgotten is the plan’s place in the larger family. The best plan is both implemented and communicated, says Latremoille. She offers to facilitate multi-generational meetings, so the senior generation can share their values, desires and estate plans, thereby avoiding surprises later on.
Working in sync
Madan isn’t securities-licensed, but she sees herself as part of a larger, interconnected professional network that includes investment managers. “An investment advisor who refers to me doesn’t get someone they have to compete with,” she says.
Says Latremoille: “We make [financial planning] part of our holistic approach […] with clients, where it’s an integration between the investment management and the financial plan.” For example, a client’s requirements for tax planning and liquidity can’t be seen in isolation, she says.
When Madan frees up cash flow for clients to invest or pay down debt, other specialists she works with benefit, she says.
Fox appreciates such industry symbiosis, noting that advisors’ sound financial planning informs his firm’s investment management: “Arguably, the success of someone’s investment plan is more heavily weighted on their savings discipline or their spending,” he says.
Getting prospective clients to appreciate financial planning is a task perhaps partly impeded by the variety of advisory business models.
Madan, a fee-for-service advisor, says it’s difficult to introduce clients to fee-for-service planning “because they mistakenly understand that they’re getting that already.”
Further, “Most people are paying me to tell them to spend less,” she says, noting the irony. (Her practice is focused on finding a sweet spot in clients’ cash flows.)
New clients tend to come from word-of-mouth referrals from satisfied clients, she says.
To define their value to clients, Fox suggests advisors focus on outcomes. “Advisors need to think about the valuable outcomes they provide, instead of the activities they engage in,” he says. That means, for example, identifying time and energy saved—things that clients value.
Says Fox: “If advisors spend the time up front understanding what people value, they can price their service on helping them experience that.”