Not many people seek out financial planners prior to the point of an immediate need. This is very much akin to the healthcare industry where the majority of work is done to cure patients of their medical woes rather than in preventative medicine. Increasing the awareness of financial planning, or preventative financial treatment, I believe is an issue the industry needs to address. It will take time, but the work of the likes of the Institute of Financial Planning can only help.
In my experience, ready-made financial planning clients only tend to arrive at the door of a planner when they are referred directly by either an existing financial planning client or a particularly well engaged professional connection. This begs the question of how a financial adviser can introduce their planning services to what initially appears to be a prospect with just an immediate transactional need.
This takes some skill and experience to resolve, but ultimately is a matter of trust between the client and the planner. Only when a sufficiently high level of trust is established between them can the conversation move away from the client’s perceived transactional need to a wider financial planning discussion.
One key decision the planner must make is to decide whether one or more of the client’s transactional needs should be dealt with at the outset. Ignoring such a need can cause confusion with clients, but planners are often wary of undertaking transactional work that may not otherwise be in the client’s long-term plan.
This is a judgement call on a case-by-case basis, but in my experience a lot of clients originally come with a specific need – such as investment of a small inheritance, accessing pension benefits or repayment of unsecured debt. I would deal with this immediate issue at the time before broadening the subject to look at the client’s wider planning needs. Crucially, this wider conversation would not usually be possible at the outset, as the client is either not in an emotional position to look at planning, or his financial position is such that he does not want to pay the initial planning service fees.
When moving the conversation on to financial planning, it is vital that this is done within the context of a discussion of the client’s wider objectives for the future. Effective planning cannot really take place until he or she can see past a single need or policy to look at the wider picture.
‘Power questions’ can really help develop these conversations. Many tried and tested power questions are available, my favourite being the R-factor question, developed by Strategic Coach. The question is usually phrased: “If we were sitting here three years from today, looking back over that period, what has to have happened during that time for you to feel happy with your progress?”
Using such a question along with carefully chosen follow-up questions can help you increase your empathy with, and understanding of, your client. This also helps you see his underlying motivations. As a result you can then carefully frame your discussions with the client in this context. For example, is the client a ‘towards’ or an ‘away’ motivator? ‘Towards motivators’ are predominantly impelled to do things or have things they currently do not, while ‘away motivators’ want to stop doing things they are now doing. It is important to identify these two personality types, because, for example, asking an away motivator what new things he wants to achieve can be a conversation killer.
At the end of the vision process, the planner should be seeking to have a list of prioritised ‘Smart’ objectives – those that are specific, measurable, attainable, realistic and timely.
With the client’s agreement, the planner can then construct a documented financial plan showing how he or she can achieve their objectives. This can be done using various software tools, but I caution against selling these tools as a service directly to the client. At this stage all the client cares about is if he can achieve his objectives and not the piece of software you are going to use.
At the end of this process the planner should hopefully be able to migrate a transactional client into one with a closer, more long-standing relationship.
But what are the biggest obstacles to a successful client/planner relationship?
Primarily, I would say the personality of the people involved. Ultimately, we all work in a people business, and we all seem to work better with different types of people. Some planners work best with high-flying business owners while others work best with those facing retirement. Crucially the planner should embrace this and try to carve a niche that builds on their strengths rather than worrying why 50-year-old widows do not seem to get along with them.
Being product or solution-driven is a detriment to a long-term relationship with a client. While it is vital that the customer knows you have all the tools and solutions at your disposal, if he or she feels the regular ongoing meetings are just an opportunity for the planner to sell more products, then trust will quickly evaporate.
The final obstacle I want to highlight is maintaining the level of trust through managing conflicts of interest. While all planners should (and do) put the needs of their clients before their own, demonstrating this unequivocally to them is vital.
But what happens if the planners’ ongoing income is based upon the value of investment portfolio from which the surrender is being made? This loss of future income may put pressure on the planner to propose an alternative course of action for the client – for instance a discounted gift scheme or a trustee investment, when in fact it might be most advantageous for the funds held in the trust to be used to repay the children’s mortgages.
How would a planner manage this conflict of interest? In my experience a charging structure that takes this into account, for instance an ongoing fee dependent upon the value of the net assets of all of the family members being advised, would help signal to the client that you are and always will be working solely in their interests.
Ian King is a chartered financial planner of Ian King Financial Planning.
Key points
A large proportion of clients are first introduced to a financial planner off the back of one or more transactional needs
It is vital that moving the conversation with a client onto financial planning is done within the context of a discussion of their wider objectives for the future
With the client’s agreement, the planner can construct a documented financial plan
