Practicing as a financial planner for over a quarter of a century, I’ve experienced a number of all-time highs for the Dow. I cannot think of a period of new highs in which the following scenario has not played out. It just happened again to me last week.
Client A calls thinking he is missing out on easy money because his account isn’t up as much as the market. He wants to move more money into U.S. stocks.
Shortly thereafter, Client B calls thinking the market is about to crash and wants to reduce exposure to stocks.
Those conflicting opinions can be exasperating to advisors that continually extol the virtues of prudent long-term investing. The conflict is also very interesting. How is it that with the same set of facts people come to opposite conclusions so dramatically?
It got me thinking about a few other contrasts that I have noticed. Some are client related but many of the ones that come to mind are related to the business of advice.
Commoditization Of Investment Management Versus How People Behave
The costs of investment management have definitely come down over the last couple of decades. I haven’t seen a 3 percent wrap account fee in years. Expense ratios on funds continue to decline. Trading fees are low or non-existent.
Investment management has become less costly but I haven’t seen it become less valuable, at least when done in the context of a sound financial plan. Most people are not good investors. Despite all the information, education and cheap even, free tools available, there is still an enormous number of people that get sub-optimal results.
I haven’t seen any indication that the market for good information put to use wisely and supported by sound personal counsel is shrinking. Quite the contrary. People will pay a fair fee for that and many providing that service have raised fees accordingly.
Financial Planning Versus Investment Advisory Fees
I keep seeing things that say we should charge “financial planning” fees over “investment advisory” fees. The most value comes from financial planning after all. Highlight the planning work, deemphasize investment management and clients won’t focus on performance.
I see some truth in the above description but if your client is obsessed with performance and doesn’t value your planning work, I suspect the culprit is neither the nature of the fee (AUM/Retainer/hourly/subscription/whatever) nor what you call the fee. It’s more about what you say and do.
If you are managing investments for clients or recommending some other party for the investment management, I think the client is perfectly reasonable in expecting a good result. But, if all you ever discuss is investment performance, that’s where clients will focus.
Longevity Versus Inactivity
Seems every safe withdrawal rate study is covering at least 30 years and most assume the same level of real spending throughout retirement. I’m not seeing that in real life. The few people that live into their 90s aren’t spending anywhere near what they once did because they simply aren’t as active.
Privacy Versus Engaging Clients’ Kids
I keep seeing articles that state as older clients die off, the assets will leave your practice when heirs inherit so, you must create a campaign to engage the heirs.
My first issue with this one is the implication that I should be concerned about an heir doing what they want with their inheritance. I work for my client and if my client wants Jr. to have free access to money, so be it. If Jr. is unlikely to make good decisions or faces other obstacles and it’s important to my client to arrange things to address the issues, that’s what I will do.
Many don’t want heirs in the loop. I have to respect that wish and especially their desire for privacy and confidentiality even if it means the heirs will not like it and not want to work with my firm as a byproduct of their anger.
Engagement with kids should be natural. not require a campaign. Living off a sum of assets can be complex. Add physical and cognitive decline and there are ample opportunities to be of value. That makes for a very good relationship with clients and their heirs to the extent clients want heirs involved.
Privacy Versus Engagement
“Engagement” is more and more a focus amongst marketers and I think they are right. Hiring a financial planner can be an intimidating experience. By engaging in small easy ways, prospective clients can get to know you or your firm a little and if their comfort level increases, they are more likely to act.
These days much of the engagement is digital. That’s all well and good until we overlay privacy and other issues. We are told to use social media to engage, but the SEC says we need to be careful about testimonials. It’s an odd state of affairs but if a client complements you online, you could have a problem.
One of the characteristics of a professional is the exercise of discretion. Do you really want clients engaging with you about their finances online in a non-private manner? I’m not saying social media use is unprofessional, I’m just pointing out it could come across that way if you aren’t careful. So, be careful. Know the rules and how to use the tools of the various platforms.
Jargon Versus Precision
In our effort to engage, educate and delight clients, we have to communicate effectively with them. One common piece of communication advice is to avoid jargon. I completely agree, in spirit.
In reality, we are in a regulated line of work and certain terms have meaning. “Income” can mean one thing to you, another to the IRS, and yet another to your client. Most people see no difference in the title “financial consultant” and “investment advisor” but the SEC does.
Suits And Suites Versus Shorts And Sofas
Communications is more than just the written word. I find conflicting advice among marketers. On one hand, the push to make planners more relatable and less intimidating leads to the recommendation to eschew a business suit in favor of a polo or something even more casual. Go further and redecorate your office to be more like a living room or coffee house instead of a more traditional business suite.
The science of persuasion would suggest this approach is a poor one. One’s finances are a serious matter and professionals can instill confidence by accepting their role as an authority. A decent suit and a traditional office can convey the professionalism needed for such serious matters affecting people of means.
Intellectually, both parties make a good case and weak one. What is right for you is dependent on who you are and who you serve. If your authentic personality draws you to putting bean bags in your lobby, go for it and market to people of similar style. If you or your clients are more traditional, go for that. Trying to be something you are not is not a sustainable approach.
High Demand For Next Gen Talent Versus No Jobs
A speaker at a recent conference said the current pace of the aging of the advisor workforce is such that 200,000 positions will need to be filled in the next 15 years. Demand will be high and supply low because financial planning programs aren’t producing enough graduates.
We are currently hiring for an entry level financial planner here in the beautiful beach community of Melbourne, Fla. In addition to students about to graduate, we are receiving applications from quite a few graduates that haven’t been able to find a job in financial planning.
Why the contrast? From what I can tell, a fair part of the difference is an apples to oranges problem. The 200,000 statistic stems from the broad use of the term “Financial Advisor”. Our already graduated applicants are deciding to try to hold out for a financial planning job. They often tell us they don’t want to work at a bank, brokerage or insurance company and have declined such opportunities.
The core of the financial planning profession is still quite small and varied with respect to business management versus the financial services industry. There just aren’t that many good open positions in financial planning. They are great gigs if you can get one. The person we hire has the opportunity to grow and develop one heck of a great life.
I can say more about all these and other interesting conflicts. I’m sure Financial Advisor readers can think of a bunch more too. Let me know. I’d love to hear about them.
Dan Moisand, CFP® has been featured as one of America’s top independent financial advisors by Financial Planning, Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines. He practices in Melbourne, Fla. You can reach him at www.moisandfitzgerald.com.