Journal of Financial Planning: March 2013
Mitch Anthony is the founder and president of Advisor Insights Inc. He is the author of From the Boiler Room to the Living Room, The New Retirementality, Your Clients for Life, The Cash in the Hat, and The Bean is not Green, and co-author of StorySelling for Financial Advisors, Defining Conversations, and Your Client’s Story. (mitch@mitchanthony.com)
Recently I visited my financial planner’s office to sign some papers required to execute a fairly simple investment. Half of the conference room table was covered with the documentation necessary to accomplish this transaction in our post-Great Recession world. What once took one or two pages now requires a ream of paper. For my planner and his staff, hours have replaced minutes, and as we all know, there are only so many hours in the day. Documentation vexation was visible on the faces of my planner and his associate.
I asked, “How can you run a profitable practice if every little transaction takes this much time and effort?”
His response? “That is the question we’re all trying to answer.”
Expanded governmental oversight, increased scrutiny, and the infinitesimal dotting of i’s and crossing of t’s have left their mark on many industries, but the mark left is indelible on the financial advice profession. When more time is demanded for clerical and compliance tasks, something else is compromised. What, specifically, is being compromised that is exigent to building an excellent practice? Due diligence? Time getting to know clients? Personal development and continuing education? Staying abreast of changes? Working on your practice instead of just working
in it?
The answer is “all of the above,” which helps explain the proliferation of personal and executive coaches who have formed a cottage industry helping planners make better use of their time and energy. Tantamount to making the best use of your time and energy, however, is making the most of every relationship, and this is where I wish to steer the conversation. The profession is embarking into uncharted territory in terms of relational dynamics relative to the advent of the distribution period of life.
In the accumulation phase, financial professionals often discuss the principle of compounding wealth with their clients. I find it interesting that we have not, as of yet, settled on a term that describes the opposite effect of compounding wealth that millions will be experiencing in the coming decades, when dollar-cost averaging will be giving way to dollar-loss averaging. Consequently, the distribution era arrives toting significant psychological baggage and with planners being increasingly measured by performance.
As Ken George, executive vice president at VSR Financial Services, reminded me the other day, “Many clients desperate for better returns are tempted to start chasing yield, which can make junk suddenly look like treasure. Add to this emotional stew the prospect that people tend to pay more attention to 100 basis points for AUM on the downslope of distribution than they did on the upslope of accumulation, and you have the potential for the following reaction, ‘Why, exactly, am I paying my adviser all this money?’”
If there is one salient emotion accompanying the end of the paycheck and the beginning of the drawdown it is this: the price of everything begins to matter. The price of gas, eating out, movie tickets, green fees, and the price of services rendered.
No one has any easy answers regarding the revenue crunch between multiplied administrative costs and erosion of assets under management, but I have noticed that the smarter firms are placing their sights on a broadened influence in a narrower swath of clientele. In other words, a starting point in the quest for profitability is to seek a position of greater responsibility with a manageable number of clients. That broadened responsibility may mean more or all investible assets under management or more revenue derived purely from advising on a greater breadth of financial decisions that clients face.
I realize that what I’m saying is no great revelation to the average financial planner, but if you understand the importance of broadening your influence in a more select group of client situations, then proper positioning in your clients’ lives and specifically the type of services you propose to provide in those relationships are going to become critical issues trending forward.
I hear so many financial professionals today lament, “I need to raise my fees but I’m worried about how to go about it.” My answer always is, “Don’t even think about raising your fees until you have first demonstrated an increase in value to your client’s situation.” To demonstrate greater value you must be properly positioned in their lives.
The Role You Play, the Price They Pay
I define positioning as the role you play in your clients’ lives. If I asked your clients what you do for them, how would they answer? Specifically, what is it your clients are paying you to do for them? And, at what point do they begin to question how much the role you play is worth? You cannot disentangle the question of the role you play from the price your client pays. Payment is a reflection of value received. We would be naïve to assume that all clients fully appreciate the value they are receiving, but equally naïve to assume that all clients are receiving appropriate value for the price they pay. In other words, not everyone feels they are getting their money’s worth. And if they feel that way, it’s not their problem. It’s yours. It is incumbent upon you to provide real value and communicate that value properly.
If I were to give a short survey to your clientele and ask the following, how would they answer?
My planner …
- Helps me invest: Y/N
- Creates a financial plan for me: Y/N
- Monitors the plan: Y/N
- All of the above: Y/N
- Does a lot that is hard to itemize: Y/N
- Acts like a personal CFO to me: Y/N
If their answers are in the 1–4 answer range, you have more to be concerned about than if their answers are in the 5–6 answer range. I do not say this to denigrate the processes of investment management or financial planning, but to underscore a reality—those processes can only take you so far in the client relationship. They are constant companions for planners and clients but are dangerous leads in terms of value propositions. Touting ROI as a lead value in the relationship is fatal to that relationship, because no planner has complete control over the factors that ensure positive returns over time.
The creation of a financial plan is often viewed by clients as a one-time event that easily becomes outdated if close attention is not subsequently paid. As the plan becomes outdated, clients begin to chafe at paying the same fee for what they perceive as less effort. The real value is in monitoring the plan, but the value of that monitoring hinges on how personal, how frequent, and how synchronized the monitoring is to the client’s life and circumstances.
Why are you in better stead if they answer, “does a lot that is hard to itemize” and “acts like a personal CFO to me”? Because your value has now superseded transactions and processes in the mind of your client. Why is it important for your value proposition to go beyond transactions and processes? Because both are commodities that are easily compared in the marketplace. When people want to know what something is worth (like a car, a house, or a service) they go online and search for comparables. In the absence of comparables people are constrained to weigh the value of the service in more qualitative terms as opposed to quantitative.
This is precisely where the magnifying glass needs to be placed today in client relationships—on providing intangible but very real value. If your client were asked what their relationship with you was worth, their answer would be a superlative not a number: “It’s hard to describe,” or “It’s worth a ton to me,” or “They do so much important work that I wouldn’t be where I am without them.” Providing intangible value is important for the following reasons:
- It cannot be replicated by software, hardware, or websites.
- It resonates in the heart and emotions of the client.
- It cannot be priced, and consequently, cannot be commoditized.
Defining Your Position
Though planning services and monetary transactions will always be part and parcel of the financial professional’s symphony of services, these processes must take secondary and tertiary seats to a more over-arching intangible yet priceless value—one I describe as ROL (Return On Life). The ROL value is articulated in a way that transmutes the position of the planner from lower-level tactician to the indispensable financial guide.
The ROL value proposition is articulated as: “My role is to help my clients make wise financial decisions so they can get the best life possible with the money they have.”
The only way to achieve this position is to earn it. The professional who guides is the one who has earned the greatest confidence in the hearts of clients. If your client is getting guidance elsewhere and coming to you for execution, you have not earned that position. If a client is only discussing investment and/or retirement/estate issues in your office, then you have not earned that position. The metamorphosis from an ROI-centric practice to an ROL-centric practice begins with a robust discovery process that is ongoing and includes:
- Discovering a client’s DNA through stories from their past and present, and hopes, dreams, and goals for the future.
- Tracking the migration of a client’s life through various transitions and situational shifts.
- Comprehending a client’s meaning as it relates to their means.
These inquiry tasks of discovering, life tracking, and comprehending present the ripest opportunity for establishing your significance in the life of the client. On the left-brain side of this business we gather numbers and facts, analyze, extrapolate, and project, but these functions all can be performed by machinery. You’re not going to increase your perception of worth to clients by turbocharging your calculators. It is when you get in touch with who your clients really are, the challenges and obstacles that consume their focus, and the ultimate end for their money that you become an indispensable protagonist in the story of their lives. Once these storylines are captured, the strategic and tactical take place, but now in a context of true understanding and purpose.
Value must be felt as well as seen, meaning it resonates both rationally and emotionally. Value received must demand superlative description. Concern for human beings making progress is the engine that drives this expanding value in your practice. With that engine in place, prospering in practice takes on a transcendent meaning and becomes a practical reality. In a follow-up column later in the Journal, I will describe the core values that need to be articulated to today’s clients to earn this more privileged position in their lives.