If you were to ask a hundred people on the street what a financial advisor does, their answer would likely be something to the effect of “someone who manages or invests money.” 

While this answer would essentially be true, in my opinion, it wouldn’t be sufficient.  Many of the most successful financial advisors focus first and foremost on the risk side of a client’s balance sheet. It is only when the client’s risk issues have been adequately dealt with will they advise on the asset/investment side. 

Let’s face it: if clients were simply looking for a cheaper or more efficient way to invest their money, there are dozens of outlets that allow them to invest, trade and place their assets into vehicles without the need of a professional financial advisor.

But that’s not why clients seek out advisors. There should be much more to the client/advisor relationship than just managing assets; successful advisors understand that.

Let Me Explain
In my practice, which spanned over 30 years, I always started with a discussion of risk management. I knew from personal experience how important it is to manage the risk side of the equation before you tackle the investment side. One question I always raised was: “If an unexpected event happened (like a car accident or someone being hurt on your property) and that event resulted in a lawsuit where your investment assets were exposed and could be used to satisfy a judgment, what type of planning have you done to protect your assets?”

Typically, the answer was: “I don’t know…I’ve never really thought about that question. In fact, my advisor has never really talked about protecting my money from things like lawsuits. We typically talk about my investment portfolio and whether it’s balanced or not.”

As an advisor, if you only talk about the investment portfolio, you are not only subjecting yourself to potential risk and liability, but you are also missing out on helping your clients at the highest level of engagement.

Risk Management May Be The Best Investment Vehicle
I learned this from my own personal experience. When I was 11 years old, my father died suddenly and left my mother with six children and an inadequate $10k life insurance policy. That was it. 

Thinking back, a $1 million life insurance policy would have gone a long way to making our lives a little easier, and it was more than affordable at his age, but my dad’s plan with his advisor didn’t include it. I could almost envision the conversation: “Bill, you’re young, you’re only 50 years old. You’re not going to die.” Until he did.

While I have often thought, “shame on both of them,” I also know my dad’s lack of financial planning made me a strong advocate for life insurance, especially in families with young children.

In my practice, I always discussed life insurance with prospects and clients, making sure they were well covered, especially if they were the bread winner. I also never wanted my clients to rely upon employer-sponsored life insurance. What would happen if they were laid off or fired? If my prospect had grandchildren, I even asked about how much life insurance their sons and/or daughters-in-law had on their lives?

In my case, my son has three children. For a time, he was in the military. He did six deployments to the Middle East. I knew if he died in combat, the small amount of life insurance offered by the government would have never been enough to raise my grandchildren.

And what about my daughter-in-law? If she died, my son might still have to deploy. What funds would be available to care for my grandchildren? I made sure there was plenty of life insurance on each of them to counterbalance the risk of their premature deaths.

Your Clients Need You To Focus On The Best, But Plan For The Worst
What about your clients? What if a similar situation happened to them? Have you gone through scenarios like this with both your clients and your prospects to demonstrate that, in your role as their financial advisor, you think about more than just their investment portfolios or how their assets are allocated?

You don’t want your clients to ever have to go through an experience like I did and wonder what would happen to their home or their investment accounts if an unexpected death threw their plan into turmoil or they were ever sued. And let’s face it—the more money a prospect or client has, the bigger target they become.

From the time a prospect comes into your office, you want to first and foremost talk about risk management. Focus on all the various forms of risk that a prospect might be subject to.

Ask them about their parents, brothers and sisters, and their children. Explore all areas of risk—not just those that pertain directly to the client themselves. I learned many times prospects had parents that might one day be dependent upon them. If that were the case, why not talk about purchasing long-term care insurance on that parent so the burden of an extended long-term care occurrence could be mitigated?

Risk Management Is The 'Secret Sauce' To Closing Prospects
In my training business, I train all of my advisor students how to use a discussion on risk to close prospects of any size in the first meeting. I have a series of what I called Disturbing Tracts. These are 22 areas of risk they should be asking in a prospect or client meeting. I advise them that the very best way to win clients is with risk management, rather than focusing on your investment philosophy or manager selection process.

These disturbing tracts are a series of questions and scenarios that help clients think outside of the box to identify potential risks they need to address, manage or avoid. 

If you want to close a new prospect, speak to them about scenarios that could potentially play out that could wreak havoc for them or for those they care about. It’s not fear mongering; it’s good financial planning. It is taking the time to point out potential pitfalls in their overall financial situation that haven’t been properly addressed.

Given the opportunity, every prospect or client would like the ability to address those issues before a situation befalls them and it’s too late.

I will say, because I brought up many issues with prospects that their current advisor had overlooked, I typically ended up with a new client. My goal was to close a new prospect in the first meeting, regardless of net worth. I want that for my advisor students as well. Prospecting is hard—when you do get in front of a prospect, you should be armed with the right tools to close them in your first meeting.

I can tell you from experience, you will find more success by addressing risks, rather than returns. Become an expert in risk management and your clients will thank you and your prospects will hire you!

Erin Botsford, CFP, The Advisor Authority, is the creator of the Elite Advisor Success System. Botsford was a 31-year veteran of the industry and a Barron’s Top 100 Advisor in all categories. Learn more about her and her training at ErinBotsford.com.