If you aren't indispensable to clients, in the end a life
insurance agent may fill the void.
Let's face it. When your mechanic does your
30,000-mile servicing, you assume that every aspect of your car is
considered and tested. If he finds anything you should be concerned
about, he should discuss it with you. In fact, you would expect that he
would write a checklist to follow to ensure he covers all the bases. If
your mechanic fails to check the car's cooling system and that failure
results in a cracked engine, wouldn't you want to know why your
mechanic did not see the signs? Is it his fault, or is it
miscommunication about what a service call entails? And who is
responsible for the cost of replacing the engine?
You, too, are a professional in your field. In fact,
you may consider yourself a specialist in investing and asset
management, leaving insurance, estate planning and the like to other
advisors. But is that how your clients see you?
Do your clients recognize you as the valuable
financial professional you are? You probably see your clients more
often-and consequently know more about them-than do their attorneys,
accountants or bankers. Do your clients walk away from a meeting with
the impression that if you, their financial professional, hasn't
pointed out a problem, their financial life must be in order? When you
create a financial plan or assessment, do you communicate to them what
it entails and what you do not take into consideration (i.e., adequate
property and casualty insurance, asset protection, estate planning or
other important aspects of the client's financial picture)?
Unfortunately, financial planning can be defined in
the eyes of the beholder. I define financial planning as identifying
what your clients are investing for, what risks can throw them off
track and what changes need to be made to reach their goals. A
financial plan should identify potential shortfalls caused by an early
death or by long-term incapacity. It should also identify tax planning
and debt restructuring opportunities. Yet, I see versions of "financial
plans" that are no more than a summary of the client's financial
circumstances, accompanied by asset allocation and security
recommendations.
Creating financial plans that clients can really
use. Quite a few advisors proudly tell me that they do "yellow-pad"
financial planning. I'm sure they mean that they simplify the analysis
for their client by listing key points. They don't produce a lot of
fluff that can confuse the client and that can result in the client
going home with reams of spreadsheets. This type of advisor goes right
to the bottom line-or does he or she?
I can appreciate that there are too may word
processor financial plans generated. These can come in the form of
cookie-cutter reports designed to sell a particular product or
headache-producing tomes of spreadsheets. But your client really only
wants to know the answer to one or two big, outcome-oriented questions:
Is he or she saving enough? Or, if in retirement, will he or she run
out of money before running out of life? Is there a less complicated
way-one that still does a thorough job and takes into account a range
of important risks-to determine the answer, so that you, the advisor,
can get back to what you do best, investment research and
recommendations?
Using the right software package to streamline the
financial planning process. Financial planning software is designed to
make this task easier-yet from my informal poll, I have found that 30%
of advisors subscribe to financial planning software and only about 5%
use it on a consistent basis. These software programs can run complex
financial calculations and projections in seconds and distill the
results in client-friendly reports. They offer risk management tools
that require no additional data entry to identify shortfalls best
covered by insurance. In addition, most software packages include basic
estate planning calculators that determine whether there is enough
liquidity to pay possible estate expenses.
Where financial planning software really excels over
spreadsheets is that it can help clients make better decisions because
they understand there is a range of possible outcomes. Because life and
the economy are not predictable, tools like Monte Carlo simulators test
how a change in assumptions can affect results. Monte Carlo and other
stress tests are most commonly used to help determine the probability
of running out of money in retirement. While I haven't found the
perfect software to fit every advisor's need, financial planning tools
are getting better every day.
The planning process-a benefit to both client and
advisor. Do clients even want financial plans? Andy Tupler, CFP, an
advisor in Raritan, N.J., believes they do. He feels that his referrals
come because part of his process for all of his clients is preparing a
sound financial plan. The financial planning process allows him to work
with young professionals who have not had the time to build investable
assets but who have high incomes and great earnings potential.
Financial planning also allows him to uncover assets that might not
otherwise be disclosed by a prospective client. Andy's work generally
results in capturing new investment accounts, even from
do-it-yourselfers.
Andy also believes that, since financial planning is
not his key profit center, he needs to make the process efficient. Like
most advisors, his top challenges are getting better clients and
finding time to service those clients. He outsources the most
time-consuming tasks, such as data entry, to a part-time paraplanner.
And, yes, Andy charges for financial planning. He feels that, if it's
free, it's not worth anything to the client. If the client is paying
for his advice, the client is more committed to implementing the plan
and less likely to cancel meetings. If you require payment for the
financial plan, you will be considered a financial planner/wealth
manager rather than an investment broker/advisor. And, finally,
financial planning attracts high-quality clients and reduces the number
of clients who would not be a match for your business target.
Do your clients look to you as their trusted advisor?
If they do, you are more than halfway there. Your
role goes beyond serving as the shepherd of their investments.
Investment advice should be more than only evaluating, choosing and
monitoring investments for your clients based on their risk tolerance.
But, even if you are purely an investment advisor,
identifying your client's goals and the effect of common risks on those
goals should be a core competency. If you are not comfortable providing
strategies and solutions, refer your clients to the best professionals
in your community who do.
The ultimate reason for ensuring that your clients consider you-and
your services-indispensable. If I haven't convinced you that it is in
your clients' best interest to take the time to identify risks and
shortfalls that could affect their financial condition, let me leave
you with this:
One of your clients suddenly passes away. Whom do
you think is at the top of the list of professional advisors the family
will call? From my experience, it is the life insurance agent.
Life insurance provides the cash to pay the funeral
expenses and the other bills that continue to roll in when the
deceased's paycheck stops. Nowadays, life insurance agents provide
myriad investment products and services, just as you do. And they are
usually trained in comprehensive planning. Along with the check for the
life insurance proceeds, it is likely they will deliver a financial
plan to the widow-one that is designed to maintain her standard of
living. The agent's investment proposal for this account-worth
hundreds, if not millions, of dollars-will include recommendations for
assets that you currently manage. Now you find yourself in competition
with someone who has already established an intimate relationship with
the client and family, based on understanding your client's needs and
goals. Moreover, the agent delivered cash when everyone else was
delivering bills. Can you compete with someone who has made him- or
herself as indispensable as this?
The beginning of a new year is a good time to clear
the air. Resolve to do all you can in 2007 to ensure that your clients
understand the pivotal role you play in their financial life.
Tere D'Amato is the director of advanced planning and wealth management at Commonwealth Financial Network in Waltham, Mass.