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.