Why prevention is better than cure

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 vast 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 medicine – is an issue that 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 therefore begs the question of how a financial planner can introduce financial planning to what initially appears to be a prospect with an immediate transactional need.

This takes some skill and experience to resolve, but ultimately, this is a matter of trust between the client and the planner. Only when a sufficiently high level of trust is established can the conversation move effectively 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 clients’ 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 now which may not, in time, be in the clients’ long-term plan.

This is a judgement call on a case-by-case basis, but in our experience many of our financial planning clients originally came to us with a specific need – investment of a small inheritance, accessing pension benefits, repayment of an unsecured debt – which we dealt with at the time before successfully at a later date broadening the conversation to look at their wider planning needs. Crucially, this would not have been possible at the outset as the client was either not in an emotional position to look at planning, or their financial position was such that they did not feel able or comfortable enough to pay the initial fees of our planning service.

When moving the conversation with a client onto financial planning, it is vital that this is done within the context of a discussion of their wider objectives for the future. Effective planning cannot really take place until the client 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 business trainer 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 really help you to advance your empathy with and understanding of your client. This also helps you to see the underlying motivations of the client. 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? A ‘toward motivator’ is someone motivated to do things or have things that they do not currently have while an ‘away motivator’ is predominantly motivated to stop doing things or escape from things they are now doing. It is important to identify these two personality types because posing questions that ask what new things you want to achieve to an ‘away’ motivator can be a conversation killer and vice-versa.

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 clients’ agreement, the planner can then go away to construct a documented financial plan showing the client how he can achieve his objectives. This can be done by 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 what was previously a transactional client into a much closer, and what should be a more long-standing, relationship.

But what are the biggest obstacles to a successful client/planner relationship?

First, 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 and others pensioners. Crucially, the planner should embrace this and try to carve a niche that builds on his strengths rather than worrying why 50-year-old female divorcees just do not seem to get along with him.

We believe that being product or solution-driven is a key detriment to a long-term relationship with a client. While it is vital that the client knows that you have all of the tools and solutions at your disposal, if the client feels that 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 conflict of interests. While all planners should (and do) put the needs of their client before their own, demonstrating this unequivocally to clients is vital.

But what happens if the planners’ ongoing income is based upon the value of an investment portfolio from which the surrender is being made? This loss of future income may put pressure upon 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 would 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 which 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 to signal to the client that you are and always will be working solely in their interest.

Ian King is a chartered financial planner of Ian King Financial Planning

Key points

A large proportion of clients who are first introduced to a financial planner are done so 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 clients’ agreement the planner can go away to construct a documented financial plan.