One of the toughest obstacles for advisors is telling clients what they need to hear instead of what they want to hear. Some people simply don't want candor. Some people refuse to be coached.

However, if you make a resolution that anyone who walks in your door is going to hear the truth, you will ultimately find yourself with a more stable client base. You will be in control of your practice and, besides that, avoid some needless stress. At least that's how it's worked out for me.
There are some significant barriers to embracing this philosophy. One reason investors resist reality medicine is that they have adopted a short-term performance orientation from the mass media. Sex sells, and sexy investments sell. Investors want to hear about hot stocks, not cold facts.

Unfortunately, the financial services industry hasn't done much to shake the delusion that TV talking heads can predict the future. The exhilaration of beating the markets has relegated the topic of comprehensive planning to an afterthought for most of the investing public.

There's occasional lip service paid to planning, but since most advisors make more income managing money than creating financial plans, it's no surprise that most advisor/client discussions veer toward investment returns. "How much can I make this year?" is what the public wants to know. No one asks, "How much can I lose if I do this?" They want to hear about an investment that might double in value. They don't ask whether the family home will have to be sold to pay estate taxes should they die prematurely. They want to know where to find the pot of gold but no one asks for a road map.

The investing public has been deceived into thinking there are secret passages that lead to investment return heaven. TV analysts are like the guy sweating in the hot sun at the track who says he has today's winners-if they knew which stocks were going up, why would they tell you instead of making a fortune and retiring to their compound on Long Island? Sadly, most investors never ask that question. They are preoccupied trying to find the next hot dot.

This distorted preconditioning impels many advisors to play the performance game with clients. Preliminary discussions about mundane topics like planning, documentation, goal-setting and the like are disregarded in favor of a stroll down a path paved with the yellow bricks of euphoria.

Clients do not want to hear what advisors know in their heart to be the truth: Over the long haul, planning is more important than returns. But until it becomes an unwavering policy to refuse investment management unless clients submit all necessary documentation, advisors will continue to beat their heads against the performance wall. And we all know that is a dead end because the first time that type of client suffers even a minor disappointment, he's off to the next advisor. Unless advisors insist clients provide all the mundane but critical details that are the underpinning for proper planning, they will be locked in to an endless cycle of client frustration. It's no way to have positive client relationships or to build a satisfying practice.

Don't Assure Me, Show Me
    Investment strategy flows naturally from comprehensive planning. But at the end of the day, most advisors tout their portfolio performance, not their planning prowess, because that's what attracts new investors. The hope for higher returns, not superior planning and attention to detail, is why people come in the door. Quite often, investment returns are what dictate 80%-90% of advisory income. That's a huge iceberg to circumnavigate.

We've all heard investors brag about a big killing in the market. Have you ever heard anyone brag about her great financial plan?

Ask a prospect whether her beneficiaries are in order and see what kind of reaction you get. At worst, a blank stare. At best, reassurance that her paperwork is all in order before she asks, "Now can we talk about what stocks or funds you think I should buy?" While it may seem easier to take a client's word that her documentation is complete, accurate and up to date, relying on her assurances is dangerous. Clients may believe everything is fine because they thought about making that change to their will for so long that they came to believe they actually did it. They may regard digging up their paperwork as a needless hassle, or be too embarrassed to tell us they don't actually know where their paperwork is. (Of course, should they die, their relatives will have absolutely no trouble locating it.) I believe, in most cases, clients simply don't understand the importance of letting advisors review their documentation.

Have you ever prevailed upon someone to let you review their trust-the one they said had been drawn up a couple years back-only to discover it was ten years ago and the trustee is a daughter who hasn't communicated with the client for the past five years because of a family argument?
Have you ever had a client become incapacitated, only to discover that the long-term-care policy he purchased before you became his advisor does not provide him with benefits until day 366?

I know a fellow who had a terrible car accident and required around-the-clock care. His wife quit her professional career and devoted herself to his care for the two years he lived after the accident. He intended for the proceeds of his life insurance to go to his devoted wife. Did I mention she was his second wife? He had intended, but forgotten, to remove his first wife (no longer devoted) from the beneficiary's name on the policy. A month before he died, he changed advisors because of disappointing quarterly returns on his modest investment portfolio. Ask his second wife, now attempting to resuscitate her career, whether the subpar quarterly returns or the unrevised insurance policy was more important to her.

Another reason the planning process gets shortchanged is that clients don't perceive planning to be as valuable as investment management. Have a bad quarter-heck, have a bad month-and goodbye. In retrospect, you're better off without that kind of client, but how can you avoid this pattern if you don't know your clients? You don't get to truly know them by managing their money. You get to know them by talking to them about their lives and by going over their history. The things least discussed during the life of the advisory relationship are the issues of greatest importance when a client dies. Of all we do for our clients while they are alive, the least important thing at their funeral is what their portfolio returned last quarter.

Who's Steering the Ship?

If clients refuse to listen to what they need to hear, rebuff requests for paperwork or continually push you into premature investment return conversations, you have to find a way to change their thinking or live with repeating the past. You know the adage about the relationship between repetition and insanity, yes? The solution lies in taking charge of your practice.

For me, the solution became clear after a client referred a young widow. Her husband handled all the family finances before he died in an industrial accident. She was awaiting payment on an insurance policy while the accident investigation was being wrapped up, and she was concerned she would not have enough money. She never managed finances before and was understandably apprehensive. The policy, purchased a few years after the couple was married, named her as the primary beneficiary and their only child at the time as the secondary beneficiary. Or so they thought. The husband had filled in her name on the first line and the child's name on the second. What he didn't realize was that the second line on the application designated a co-beneficiary, not a secondary beneficiary. On top of that, the couple had had two more children in the intervening years. So now the wife, who already suspected she might not have enough money to support her family, discovered she had only half as much as she thought. The other half belonged to her oldest son, who was an alcoholic and roustabout. Meanwhile, the two younger children had been effectively disinherited.

This was a tragic example of someone thinking he had done the right thing for his family and being wrong. No one discovered the error until it was too late to correct.

I vowed I would not allow anything like this to befall one of my clients. I would insist on a planning discussion and document review, and I realized the only way I could get clients to give me what I needed to do a proper job of planning was to charge them for my time. I began charging fees for planning and refused to accept new clients unless they agreed to planning discussions and a documentation review.

Perceived Value

You and I know that people don't like paying fees for planning. There are plenty of advisors who will throw in free planning or bypass the planning process altogether in favor of managing client assets. But I make clients write me a check for my advice and I've found they not only expect more of me when they pay, but they are far more cooperative in getting me whatever information I need. They are more motivated to do what is necessary and right because they have paid me and they expect me to do what is right.

I no longer spend time with people who refuse to be coached or who want a relationship based exclusively on investment performance. That's not a relationship; it's an audition, and they'll leave at the first sign of a sour note. Yet that's when having a solid plan and a good advisor is most important.     It's what prevents investors from making poor decisions, especially during periods of excessive volatility.

As advisors, we have a choice. We can fret over what we can't control because our clients won't let us be in control, or we can assume control of our practice and our destiny. Do we want to spend our time focused on what Wall Street wants us to worry about so we can make them money, or do we want to take control, create a plan and help our clients make informed decisions? We want clients to be able to make choices based on whether those choices will get them closer to their goals; whether the choices align with their plans; whether their choices are made under emotional stress; and whether they are increasing their wealth and serenity. If we can get clients to take five minutes and consider these questions each time they face a financial decision, they can avoid most mistakes and make better, more focused decisions. That is a far better return on investment than an extra 100 or 200 basis points this year.

I want to know everything about my clients because whatever problems they may have, I can't help solve them after they are dead. There isn't enough money to get me to manage the portfolio of someone I don't know anything about. I won't be the advisor who goes to a funeral where the surviving spouse is in financial trouble because I didn't force her husband to bring in his paperwork. And I now know I don't ever have to be.

Wayne von Borstel, CFP® ChFC, is founder and president of Oregon Trail Financial Services, a registered investment advisor company based in Portland, Ore. Von Borstel can be reached at 541.296.6669 or [email protected].