For many financial advisors, ‘proving’ their worth to prospects prior to engaging them as clients (by delving deep into the details of the prospect’s situation, and then coming up with potential strategies of how the advisor believes they can help the prospective client to ‘fix’ their financial life) is an irresistible means of marketing themselves to cultivate new client relationships. However, the reality is that financial advisors don’t always prioritize the same issues that are actually most important to prospective clients and can often invest time and energy analyzing details that do little to actually bring in new clients. This isn’t to say that the important issues viewed by the advisor should not be addressed – rather, selling to a prospect by emphasizing what’s most important to them (i.e., reaching their goals), and then servicing them once they become clients by addressing all of the points the advisor knows is most important for the client’s holistic plan to be successful, is not only a more efficient use of the advisor’s time but also a more effective way to convert prospects to clients and to fully service them with their financial planning needs.
In this guest post, Evan Beach, Director of Wealth Advisory at Campbell Wealth Management, an RIA in Alexandria, VA , discusses a research study conducted by Morningstar that found that clients value an advisor who helps them reach their financial goals above anything else. On the other hand, the advisors who were surveyed believed that their clients’ top priority would be for their advisor to understand who they were and their unique needs. And while these priorities may have similarities, the challenge facing these advisors is on keeping the focus of their discussions with new prospects on the big-picture journey to achieving their goals, rather than on the nuts and bolts of the mechanical necessities of ensuring the ‘vehicle’ (i.e., the financial plan) – at least initially during the prospecting stage – will not break down along the way. Accordingly, it is crucial for advisors to ask prospects and new clients the right questions to identify and understand the goals that are most important to them. One approach is to ask questions during the initial meeting that probe into the client’s vision for the long-term, mid-range, and short-term future vision of how their life would look if they had and did everything they wanted, and then to prioritize the importance of the goals identified. Then, with that information in hand, advisors can structure subsequent meetings to address how they can help the client to plan for and actually achieve the goals they identified.
A financial advisor’s skills and knowledge are what clients identified as the second most valued aspect of the relationship with their advisor, which is an important point for advisors to consider when setting up their website and social media profiles because many clients will use these resources to identify if the advisor has the qualifications they seek before even reaching out to them in the first place. Additionally, advisors can bolster their credibility by using media inquiry services like those offered through the Financial Planning Association or through the Help A Reporter Out (HARO) service, by engaging with a public relation firm, and even authoring articles for personal finance and financial planning websites. The CFP designation, too, demonstrates an advisor’s credibility to prospective clients that they are likely to associate with a requisite level of expertise. Similarly, good communication skills are also ranked highly by clients, and using a storytelling structure can be a good strategy for advisors to explain complex ideas to clients.
Surprisingly for many advisors, many clients care a lot more about investment returns than advisors think they do. Accordingly, financial advisors should be thoughtful and empathetic when addressing their clients’ investment concerns while maintaining sound financial planning logic and practices. Advisors should educate their clients about rational benchmarking decisions, as well as create unique investment portfolios specifically designed to meet their individual clients’ goals.
Ultimately, the key point is that advisors can strengthen their client relationships (and improve their prospect marketing efficiency) by identifying and understanding what their clients value most from them. For many clients, focusing on and prioritizing goals (versus discussing the technical side of their advisor’s financial planning strategies) are generally what matters most to them. And to successfully convey to the client (and prospect) that you are on the same page with them and that you have the relevant knowledge and ability to help them achieve their goals, will be the most effective approach to providing the most value to your existing (and future) clients!
A few years back, my team had the opportunity to fly out to San Diego and meet with our counterparts at a similar firm. At the time, this relatively new $500MM RIA was bringing on about $200 million per year in new assets, organically. Their goal was to find better systems to improve client retention, and they wanted to pick our brains. Our retention was (and still is) over 98%, but we were bringing in about $50 million with about the same asset base, organically, per year. A perfect match.
In sharing our onboarding process, I broke out the one-page plan that I unveil to clients in their second onboarding meeting as new clients. This was my baby. I had our technology guru code an Excel spreadsheet that would allow me to select from a dropdown menu of estate and tax strategies, insurance recommendations, investment observations, risk alignment, and income strategies, based on each client’s unique situation. The founder of the firm we were visiting scanned it for about eight seconds, looked at me, and said, “Do you think people care?”
My heart sank. It took me a few weeks of reading through the notes from our visit to realize the magic of this firm: Doing less upfront. They took all the things out of the onboarding process that we think clients want, but this firm realized clients don’t care about. They showed them how to reach their goals, make their investments more efficient, and reduce their taxes. Nothing more.
Our one-page plan, which covers everything we know is important as financial planners, was actually better suited for clients during the review process after they were onboarded. This somewhat dry to-do list focuses on everything clients need but don’t typically care about: Are my beneficiaries up-to-date? Do I have the right amount of insurance? Do I have the right amount in my emergency fund? And so the contents of our one-page plan are now used with clients during their service meetings, where we know those plans are adding ongoing value. This freed up time in the first three meetings to do the thing we fear most – sell our services and explain how our services will help the prospect reach their goals. The end result of changing this initial client process? In the first quarter of 2020, we brought in more assets organically than we did in all of 2017, with the same budget.
In Morningstar’s “The Value of Advice: What Investors Think, What Advisors Think, and How Everyone Can Get on the Same Page,” (and recently expanded upon by the Financial Planning Association) Samantha Lamas, Ryan Murphy, and Ray Sin reinforce the concept that clients don’t necessarily value what we, as advisors, value or think is important to client success.
As a profession, financial planning emerged as the child of insurance agencies and investment brokerages, and the illusion of market-beating investment and product performance is deeply ingrained in the client’s mind. And, playing devil’s advocate, when someone pays us based on the investments we manage, they are arguably right to assume we should be able to outperform. “Outperform what?” though, is the question.
Most readers here would agree that having a significant number of clients that want to outperform the S&P 500 will lead to huge client turnover. But benchmarks do need to be set, and advisors often still need to prove their value when it comes to investing, not just planning. Otherwise, what would keep the client from ‘just’ hiring the advisor for planning-only services and then simply buying a portfolio of index funds themselves?
Vanguard’s Advisor Alpha, Morningstar’s Gamma, and Envestnet’s Capital Sigma have influenced how we think about where our value is derived as financial advisors, beyond just portfolio performance alone. However, these studies are quite literally Greek (alpha, gamma, sigma!), especially to our prospective clients! They work better as tools to convince ourselves of our own value – to give us the confidence to charge our 1% fee.
We need to get back to what clients actually care about. We need to sell to the points most salient to the client – around how they can reach their goals, and service them in areas that we as advisors care about (and that we know matter) the most – with the end goal of helping the client succeed financially in the most efficient manner possible.
So what does Morningstar’s research suggest is actually the value of advice and the relationship with a financial advisor – not just in the words of advisors, but in the words of clients themselves? And how can we apply an evidence-based approach to marketing and selling our services, based on what clients actually care about (not just what we think they care about)?
What Clients Want Most from Advisors: Helping Them Reach Financial Goals
Research says: Investor Value – Ranked #1 of 15; Advisor Value – Ranked #2 of 15
Ah, alignment is a beautiful thing! While the Morningstar/Journal of Financial Planning research illustrates a significant disparity in many areas between what we think clients value and what they actually value, there should be relief in the fact that goal attainment is top of the list for clients and close to that (number two) for advisors.
Above all else, “helping me to reach my financial goals” is the reason that clients hire and retain financial advisors. Accordingly, it should be the focus of the majority of both initial prospect meetings as well as ongoing review meetings with existing clients.
Vanguard, Morningstar, and Envestnet have each attempted to quantify the benefit of all the things we do as advisors. But we have made the mistake of assuming that what the client cares about is some thing that is worth X basis points or that generates Y% more income.
At the end of the day, though, money is the tool, not the goal. Want proof? Take a client who needs $5,000 per month in after-tax income. Ask them, if they were to get a $5,000 check every month for the rest of their lives, adjusted for inflation, without ever running out of money, would they care what tools you used to make it happen?
Eleven months ago, I jumped on the Tesla bandwagon. Not because I’m a big car guy, but because when I get into the car and type my destination into the vehicle’s navigation screen, I know it will get me there with very little effort on my end. So long as I know that can happen safely, I don’t really care how it works.
The most important insight from this study is that we are like a car in our client’s financial world. The most important thing we have to do is get them safely from point A to point B. Alpha, Gamma, and Sigma are some of the things that make the engine run, get us better gas mileage, tell us which way to go, and make sure we don’t crash. Are they important to have? Of course! Do we need to explain the technical details of how they work? Of course not!
Hopefully, by now I have made the point that clients hire us to get from point A to point B, but before we even get the opportunity to convince them that we are the best partner for them, we need to get them through our door.
Marketing To The Goals Of Your (Best) Clients
You’ve probably seen Ted Jenkins somewhere. I seem to see him everywhere. And while I don’t know him personally, I can attest to his marketing skills. His firm, oXYGen Financial, has provided a brilliant example of how to use client goals as an interactive lead magnet to capture the information of the right prospects.
This becomes more powerful when applied to a homogeneous group of people who feel that most of the goals apply to them. If you don’t have a niche, you should focus on the transitions and goals of the top 20% of your clients. Odds are they are all very similar.
For example, this guided inquiry might be an appropriate tool for retirees and those on the verge of retirement:
In this example guided inquiry, each option leads to a series of clicks that end with the visitor entering information in exchange for some offer.
For instance, if a client clicks on the statement, “Making sure I can do the things I want to in retirement”, they will be guided through the following sequence:
While the Call To Action (CTA) in the inquiry sequence here asks the visitor to schedule an appointment straight away, we prefer to offer this option on our website for those who are ready to roll, in addition to something Ryan Levesque would call a “micro commitment.” For example, you could offer the “Guide to Funding Goals while Minimizing Taxes,” in exchange for contact info.
The key point, though, is simply that when goal attainment is the client’s top focus, the marketing on your advisor website isn’t about what you do and your performance… it’s about highlighting the client’s goals and that you understand them and know how to solve them!
Sell To A Client’s Individual Goals
Write down the names of all the clients you have brought on during the last year. What was the catalyst event that drove them through your door? Odds are the vast majority of them had some forcing mechanism or life transition occurring that drove them to you.
For that reason, we often skip over the process of identifying the client’s other longer-term goals and instead dive straight into planning around the immediate area of concern. But the Morningstar research suggests that is a big mistake, or at least may be a too-superficial way to think about helping clients achieve their goals.
Think about a client who came to you because they are retiring. It might feel good to say “wonderful, we help clients achieve their retirement goal!” But retirement is the transition or the event itself… it’s not necessarily the goal anymore.
When I teach both consumers and financial professionals, I always talk about the difference between “retiring to” and “retiring from.” Retiring to volunteer, travel, or have more time with grandkids, versus retiring from the traffic, the alarm clock, and the unbearable boss. The difference is that “retiring to” specific goals evokes positive emotion, and “retiring from” finished business evokes negative emotion.
Asking the client the right questions to identify the goals they most look forward to achieving is a great way to get them into a positive state of mind, and selling to those positive-emotion-evoking goals will facilitate moving those clients forward!
But how does an advisor determine how to have these conversations in the first place? What questions should they ask the client?
George Kinder uses a three-question goal identification strategy, in which he asks clients to start with an ideal future and then bring the timeline all the way back to today, asking, “If today were your last day, what did you miss? What did you not get to do? Who did you not get to be?” Cue the tears. (Look more into Kinder’s work to judge your comfort level.)
At our firm, we use a different approach. As an $800MM AUM RIA that takes only clients who are 55 years or older, our job is not to get our clients to retirement, but instead, we aim to get our clients through retirement!
Accordingly, we start very long-term and similar to George Kinder’s approach; our method begins by asking the client, “If you were to look back twenty-five years from now and say, ‘Wow! This retirement was everything I wanted it to be. I did what I wanted, when I wanted, with the people I love most.’ What would that look like?”
We then have our clients list ten things they’d like to do in retirement. Next, they identify what they will do in the next five years. Finally, they do the same for the next twenty-four months. Like Kinder, we not only prioritize what is most important but also identify what requires urgent planning.
Now that we have helped the prospective client clarify their goals, we have a target to aim for. We must now pivot to figure out where this prospect sees us, the advisor, fitting into this journey. What do they want from an advisor? Are they looking for someone to tell them what to do or to do it for them? Are their expectations realistic? How do we find this out? We ask!
Directly below our goal exercise, we ask this question that we borrowed from the founder of Strategic Coach, Dan Sullivan: If you were to engage our firm today and look back three years from now, what would it take to consider this relationship a success?
If clients hire us to reach their goals, two things need to happen before they sign on the dotted line: They must know, specifically, what their goals are, and they must believe we are the best person to help them get there. The first exercise gets clients to put pen to paper and fully commit to their goals. The second gets them to rehearse engaging us. To picture what it would look like to have it work out. If we can satisfy the relationship goals, we are doing that prospect a disservice by not pushing them to engage us.
Clients Value Relevant Skills And Knowledge
Research Says: Investor Value – Ranked #2 of 15; Advisor Value – Ranked #5 of 15
I am currently in the process of getting a French drain, sump pump, and an overall basement waterproofing system for our house. The first place I went to get a list of professionals was not my friends or family, as they don’t live in the neighborhood, and likely have slightly different issues. Instead, I went to NextDoor, figuring my neighbors would have dealt with the same problem. But NextDoor estimated that the cost would range from $8,000 to $20,000. That’s not only an expensive investment but one that comes with significant price disparity!
Sound familiar? Because I was spending a significant amount to protect a much more significant investment – my house – I got four quotes. Before I even got those quotes, though, I narrowed down an endless list from NextDoor, cross-referenced my list with Yelp, and finally, I looked at each company’s website.
While it might be difficult for a client to search quite as exhaustively for a suitable advisory firm, you’d be naïve to think prospective clients don’t already know the letters on your business card, your dog’s name, and the fact that you “love curling up with a good book and a glass of red” in your free time.
Perhaps the disparity here – that prospective clients vet our expertise more than we realize – arises from the fact that our skills and knowledge have already been vetted before a prospect commits to spending any significant time with us in the first place. By the time someone shows up at our door, it’s more than likely that they have done their homework and have researched us quite extensively. Which means if we didn’t measure up on our website, LinkedIn profile, and other online sources… we never even know that we lost the prospect due to a failure to demonstrate our skills and knowledge.
But the Morningstar research reveals that the advisor’s skills and knowledge are an essential element - #2 on the list! Thus, our job is to provide evidence of relevant skills through our website – so they can find the information that leads them to actually show up!
On the other hand, a prospect coming to your door is proof that you have likely already cleared the credibility and knowledge hurdle by that point. Therefore, at the meeting, it’s rarely necessary to spend any time answering the prospect’s questions to convince them you meet the education and experience requirements of the profession, and instead, the advisor can focus on listening to the clients talk about themselves.
Once again, our services are the bridge between their current and future state. Accordingly, while our background can be discussed if and when they ask about it, evidence of our expertise should be readily available through our business websites and online searches, whether that be through contributing authorship on personal finance websites and expert quotes provided to media outlets.
Using PR To Bolster Credibility
I started teaching Social Security at the ripe age of 22. Talk about imposter syndrome! It’s totally normal early in your career to second-guess yourself, but you never want your clients to. And, right or wrong, good PR helps solve both issues.
Using Media Inquiry Services
If you are a CFP professional and a member of the FPA, you should consider using their Mediasource media inquiry service. You have to go through a training session, but it is short, painless, and, in my opinion, one of the biggest benefits of FPA.
If you’re not an FPA member, you can use the Help A Reporter Out (HARO) service. This is a forum where reporters can ask subject matter experts to submit quotes for their queries. It is essentially the same as the FPA, but for a much broader set of topics (and unfortunately with a lot more competition, which means the key here is the speed of response to be first getting back to the reporter to be their source).
Many of my best media relationships blossomed from conversations that were initiated through these two channels. And these conversations turned into great PR opportunities, which in turn helped me build credibility for my skills and expertise that clients value so much!
The Utility of PR Firms
However, if you feel you don’t have enough time to take on one of these marketing channels, you can consider hiring a PR firm. These are professional matchmakers between advisors and the media. Our RIA has a retainer with a PR firm, and the biggest benefit of the engagement is that it forces consistency.
Responding to media inquiries is an easy thing to put on the back burner when more urgent tasks surface, but paying a few thousand bucks a month for a consistent flow of inquiries helps keep PR efforts front and center! It’s leveraging a PR firm for their expertise, and also a healthy dose of personal accountability for your credibility-building PR strategy!
Authoring For Personal Finance Websites
Did you know Ken Fisher is a Forbes columnist? Yeah, so does the rest of the world. Do they know that because everyone reads his column? No, it’s because Fisher mentions his own Forbes column in every single marketing piece their firm sends out!
Because the reality is that it’s not enough to be quoted or published. You have to tell people about it. Fortunately, the beauty of the internet is that it’s really easy to say the same thing in eight different communities with one click.
I started writing for various personal finance sites about five years ago. I now write almost exclusively for Kiplinger. Why Kiplinger? It’s got a strong brand name, the right readership (wealthy boomers), and it’s local.
The speaker bios I use for local events almost always lead with the fact that I’m a Kiplinger columnist. The folders we hand out at the events have relevant articles I have written. Every email I send has an “As Seen On” emblem with the logos of the channels I contribute to most frequently. My phone rings only a few times per year as a result of all this effort, but I know my relevant knowledge is evident to and supports the sales process with every prospective client. And because of that, I know I have a shot.
The Value Of Earning The CFP Designation
When I started in the profession, my girlfriend – now wife – babysat for a CFP while she was finishing her master’s degree. He lived in a nice home in a desirable neighborhood, and while it seems so ridiculous now, the assumption was that he was successful because he was a CFP professional. Becoming a CFP will not make you successful. It is a tool that, through its rigor, will greatly increase your odds of becoming successful.
We often think of attorneys or medical doctors as being successful. But the truth is, as you well know, many do not achieve financial success. Those that do typically built something that led to that success. The Esq. or M.D. behind their names was simply their ticket to get in the game. While the CFP is not the same prerequisite to practice, it’s becoming more and more of a prerequisite for hire, both for prospects and firms.
Shortly after moving to Washington in 2011, I received a fair amount of pressure to enroll in Georgetown’s CFP program. While my intentions were misguided, believing that the CFP alone would bring success, I am sure glad I did it before having kids!
According to Investopedia, there are more than 200 financial designations. At least 195 of them don’t matter when it comes to marketing your services. My opinion is that educated consumers will accept the CFA, CPA, and CFP as valuable designations if they are concerned with credentials.
In other words, the CFP marks allow you to better market and demonstrate your expertise and credibility to prospects – because again, “relevant knowledge and skills” is a key factor for consumers choosing an advisor. Of course, as an added benefit, the education of the CFP marks also helps the advisor to serve their ideal clientele.
On the other hand, there is likely a point of diminishing returns for showing expertise to prospects (at least in the form of professional designations). The CFP marks 'work' in part because they have increasingly wide brand awareness. However, the ever-widening range of more specialized post-CFP designations may be good for teaching expertise, but lack the consumer awareness to make them as valuable as a marketing tool. Which means that while post-CFP certifications do allow you to better serve your clients, for the time being, most consumers don’t really know what they mean. So consider the CFP marks for expertise credibility upfront, and post-CFP marks to actually hone your skills to demonstrate ongoing value instead.
Clients Value Advisors With Good Communication Skills And The Ability To Explain Financial Concepts Well
Research Says: Investor Value – Ranked #3 of 15; Advisor Value – Ranked #4 of 15
“At your FRA you’re entitled to your PIA, which is based on your AIME. Unless, of course, you decide to delay, then you need to factor in DRCs and COLAs.” This is the punch line of the opening story in my Social Security workshops. (Bonus points if you, a financial planner, know what it means!)
The point is simple: Social Security is complicated. The next step is what differentiates the pros from the dinosaurs. Pros simplify the message: Your Social Security benefit is based on 35 years of work. You get your full benefit between 65 and 67. If you take it early, you’re penalized. If you wait, they’ll pay you more. Our job is to maximize your benefits and to help you file.
Dinosaurs rely on the information gap, which would assume we have access to more information than the consumer. It says to the consumer: You’re too stupid to figure this out on your own, so you have to hire us to figure it out.
The difference is that the former is an offer to hold your hand, while the latter requires blind trust.
Albert Einstein was famous for saying, “If you can’t explain it simply, you don’t understand it well enough.” Why does Carl Richards get paid $35,000 for an hour-long keynote? Why is Ric Edelman’s show broadcast in 85 different markets? How did Suze Orman crack Time magazine’s TIME 100 list?
Regardless of your feelings about any of these individuals, they all have one thing in common: They take something complicated and make it simple and relatable. You’ll see in the next section just how passionate I am about following their lead—selling simplicity in the face of complexity. And, I know what you’re thinking. If it’s that simple, why wouldn’t they just do it on their own?
Fast forward to the sump pump story. We finally engaged a company to install a drainage system. The part I left out of that story is that before I ever reached out for any quote, I did some research on how to install one of these systems on my own. When I saw the word jackhammer, I knew it was out of my element. I knew this was way too complicated to do on my own. In most cases, the prospects that show up at your door have also done research on how to do this on their own, and there was good enough reason for them to not take that path and to drive across town (or fumble around with Zoom) to get someone to explain things in a way that they can understand.
Our job is not to create financial chaos that only we can solve; rather, our job is to simplify the complex and to create peace of mind in our clients as they journey to goal achievement.
Required Reading: “Storyselling”, “Start with Why”, and “Talk like Ted”
Last year, I had the pleasure of teaching the Personal Financial Planning master’s students at Texas Tech University. The night before, I asked who else had spoken to the students recently. The last speaker was Mitch Anthony. Imagine getting on stage after Justin Bieber. Mitch Anthony is my Justin Bieber.
Think about how long it took you to buy your last phone case on Amazon, at a cost of $7.99. If you’re like me, you pored over reviews with a focus on all the things that could go wrong.
Now think about the last professional you hired. Whether it was a CPA, team member, doctor, or lawyer, the odds are that your choice just ‘felt’ right. You used the logical part of the brain to justify your decision after the fact, but you made the decision with your emotional gut feeling.
If you remember my Social Security example above, I want you to think about your last trip to the DMV (at least, pre-pandemic). You probably waited in a long line just to pull a number that subdivided the lines. Once you finally got called, you walked up to the window to a disgruntled employee, knowing you had only about a 50% chance of walking out of there with what you came for.
Now imagine all of those things – but this time you don’t speak the language. When you finally get called, you have no idea what the agent is even saying. Welcome to the Social Security office!
Wouldn’t it be nice to have someone to guide you on what you need to bring, to sit with you in line, and to be your translator when you finally get called, so you are walking out of there with more money than when you walked in? Think about how much more powerful that is than telling someone you know how to get 8% more in Social Security.
Storyselling for Financial Advisors is full of exercises and examples that force you to think in this manner.
The only thing that would make the above analogy more impactful is an actual story. Instead of “imagine the…,” you start with: “In February 2015…” I challenge you to find a Ted Talk that doesn’t start with a story.
When we tell stories, it changes the activity in our brain. A process called linking mimics brain activity between speaker and audience, and we start to relate. Talk Like Ted by Carmine Gallo starts by proving this concept. You may have noticed the number of stories in this post. It’s not a coincidence. In the top-viewed Ted Talks, 65% of the material consists of stories. In my client presentations, I am always aiming for that figure.
Clients Care About Returns!
Research says: Investor Value – Ranked #4 of 15; Advisor Value – Ranked #14 of 15
The disparity between how investors and advisors rank the importance of investment returns is embarrassing.
Imagine if you walked into a chiropractor’s office, and their mission or stated goal was to “improve your quality of life through their proprietary aligned back method to alleviate your back pain.” If your quality of life improved because you met the love of your life, but your back pain remained, they may have achieved their goal to “improve your quality of life” but they did not do their job because you paid them to fix your back. You can’t attribute your quality of life improvement to their work as the chiropractor. So you may be happier now with an improved quality of life… but you’re still not going back to (or referring) that chiropractor!
We may tell a client that we are going to improve their quality of life by giving them back the time they would have otherwise spent stressing about money by properly managing their money, and helping them achieve their financial goals… but in the end, they are going to judge us on how well we managed their money (at least, if “managing their portfolio” is part of the services you provide). Simply put: If you charge AUM to manage their portfolio, you may try to add value in other ways as well, but you still need to add value to the investment management side!
About five years ago, my company retained a coach who constantly said, “You have either results or reasons.” It’s a phrase I use with my team and a soundbite that reverberates every time I start to try to explain why something isn’t the way it should be. Applied to this study, we use all of the other things we do for clients as the reasons we don’t have to get the investment results. But the Morningstar research is quite clear: the investment results do matter.
Do Not Sell Emotional Coaching!
On March 18, I received an email from a client I have known personally for a long time. She said that her account had fallen below an acceptable dollar amount and that she wanted out of stocks immediately. Part of my internal job description as a financial advisor, at least according to Carl Richards, is to “stand in between the client and 'stupid'” So I picked up my phone and did just that.
As of this writing, the S&P 500 is up about 41% since March 18. My emotional coaching likely just paid my fee for the rest of the client’s lifetime. This story is backed up by Vanguard’s Advisor Alpha, Morningstar’s Gamma, and a whole host of other academic research.
Unfortunately, it is a fool’s errand to use this story in our sales process. It might be true to say, “I know we did worse than our benchmark this year, but at least I didn’t let you do anything stupid, like sell at the bottom of the market.” But it isn’t persuasive to the prospective client.
Ironically, the biggest reason that “helping clients with their behavioral biases” doesn’t sell well is because of their behavioral biases. Prospects who have never actually made the mistake of selling at the bottom in the past succumb to confirmation bias and believe that they will never make that mistake in the future (even if they might). Prospects that sold at the bottom in the tech bubble and the great financial crisis, but have enjoyed the bull market since then, may overweight recency or exhibit overconfidence and be certain they “won’t make that mistake again”.
Which means at the end of the day, as Michael Kitces and Carl Richards discussed at length, we would have to convince the prospect they are stupid, we are smart, and they need us to control their emotions so they can make better investment decisions in order to prevail in the argument. And it’s hard to start a positive relationship with a new client by tearing them down first.
Imagine the marriage counselor who advertises on Facebook: “Is this your second marriage? Hire us, so you don’t make the same stupid mistakes again.” They might be right and capable, but highlighting for someone their previously failed marriage isn’t the right way to start a new relationship. Wouldn’t they be better off saying: “We help clients in their second marriage live a more harmonious life through effective communication. Click here to learn more”?
The point here is that during the sales process, we only want to look forward from the current position to the desired position. We are bridge-builders between the two. Digging up unpleasant memories and highlighting the client’s prior “stupid” – even if your value after the fact is standing between them and stupid – will only hurt your close ratio and make people not want to work with you to prove it in the first place.
The CFP board recommends you spend 250 hours studying for the CFP exam. Let’s say your program has six different classes, all requiring the same time and attention. This means you would spend approximately 42 hours on investments.
On the other hand, the CFA Institute recommends at least 300 hours of study to pass each of the three levels of the exam. That means a CFA charterholder spends about 21 times as much time studying investments as the average CFP professional. Yikes!
I realize that is an oversimplification, but I have sat in both seats, and I can tell you that the CFA who runs our investment department is a better investment manager than I am. If I know that, don’t I owe it to my clients to have him run the money?
While we don’t use TAMPs or SMAs in our office, there is a ton of value here for small and big firms alike. It’s hypocritical for us to expect clients to delegate the things they are not good at or don’t like to us and then turn around and refuse to do the same thing with the investments in our own role.
Michael Kitces contends that as advisors focus more on planning, most of them will use these outsourced investment platforms. Why would that be? Well, if you brought me a prospective client who had just lost a spouse in their 60s, it is my belief that you would not be able to find a planner who is better suited to help that prospect with their financial planning. Jay Abraham calls this preeminence. If I know clients actually care about returns, I’d have to also believe that I am the best possible person to manage their money for it to make sense for me to do it. If I don’t believe that, I am making a decision to save money in the short-term but risk losing the entire revenue stream in the long term if I don’t actually maximize returns.
Educate on Benchmarking
I saw a car salesman on “Million Dollar Listing” say, “I’m in sales. I’m not in sales prevention.” Educating clients on appropriate benchmarks during the sales process can definitely put you in the latter category if applied incorrectly. But if not done at all, you have failed to manage expectations, and that will backfire down the road.
Let’s say a prospective client comes in, you dive deep into their goals, and you determine that their Traditional IRA has to earn an average return of 6% to be on track for achieving their goals. You also determine that they should have a moderate growth portfolio because you think it is the best risk-adjusted path to that return.
You started with life. The plan says what you need and for how long: 6%. The tool is the portfolio. That tool is a 60/40 portfolio, so should it be compared to the S&P 500? Of course not. That’s like comparing a 767 to the Concorde. The Concorde was twice as fast... but also crashed.
Should you benchmark against goals? Of course not! If you know you need a 6% return to hit the goal, why not just compare to that number? Michael Kitces broke this down in much more detail, but essentially you need to think about the years when the market is down 20, you’re down only 12, but in your client’s eyes, you’re still at -12% instead of +6%, which means you’re 18% below where you should be. Loss aversion will tell you that the pain of losing 18% will be greater than the pleasure of outperforming by 18% the next year. In other words, benchmarking to goals can quickly become the equivalent of benchmarking to a 6% (or whatever) absolute return benchmark, which ironically is even more difficult to achieve!
Accordingly, every one of our models is benchmarked daily against the applicable Morningstar peer group. We show clients where to find these benchmark returns for third-party verification. But we do this once they have signed on the dotted line. If we don’t have results, we’d better have a damn good reason.
Create A Unique, Valuable Investment Offering
Imagine you are shopping for a brand-new Jeep. You know exactly what model, color, and option package you are looking for. Dealership A sells the car for $35,000. Dealership B wants $40,000. If there is no difference in the car, you obviously will buy from dealership A. In order for you to change your mind, dealership B would have to add something that is worth more than the $5,000. Perhaps B is safer, faster, or more reliable.
To draw a parallel to our profession, it may come with a service package. But no matter what, that added thing can’t be detrimental to the car. The car has to be as good or better. In our profession, the car is the investment offering. Financial planning is the service package. Because the client can now go to a discount brokerage and buy the investment without a sales load or any middleman, we have to add something to the car to make it different and hopefully better than the cheaper version. We cannot add our service, financial planning, to an investment product that’s worse than what’s off the shelf. Otherwise, a client will almost always be better off paying hourly or retainer fees just for planning.
Our firm only takes clients over the age of 55. This is both for planning purposes and investment purposes. Our advisors can go deep into Social Security, tax planning in retirement, Medicare, long-term care, etc. It also means our portfolios can be built specifically for retirees.
Think about it this way: Suppose I have a 30-year old client who is in the accumulation phase and a 70-year old who is in the distribution phase. Even if they had the same risk tolerance, wouldn’t I want to use a different rebalancing strategy for each of them? Do you? We don’t have this problem, because our client base is so homogeneous. Therefore, I can confidently say that our portfolio is built for you, specifically for retirees like you (that we focus on and specialize in), and you can’t buy it down the street at Schwab, Fidelity, or Vanguard.
Yes, clients care about maximizing returns, but it’s tough to say exactly what that means. I believe the risk-managed portfolios we have for retirees are the best for maximizing returns, but more importantly, these portfolios will help them reach their goals at their particular risk tolerance.
While guaranteeing certain returns is obviously not something I can promise to clients, our system has a solid track record, relies on a strategy backed by academic research, and was developed specifically for our client base. Our asset management practices put our clients at ease because they trust our approach and understand that we are taking care of them, even when markets are going wild. And because of this, our clients stay put because what we offer them – a dynamic strategy that has been specially tailored to help them meet their goals – cannot be replaced by SPY at 3bps. The point here is that you can’t buy the same investments as the client, slap a 1% fee on it, and call it a day. You have to do something extra, something different, that they can’t buy off the shelf at Dealership A.
Believe it or not, we are still in the investment business. If you are unwilling to accept responsibility for investment results, charge hourly, monthly, or retainer fees.
In 1992, James Carville said, “It’s the economy, stupid.” He was working, at the time, as a strategist for Bill Clinton’s campaign against incumbent George H. W. Bush. The “stupid” in that quote is a reference to the fact that we often overlook what is so obviously important to the client.
In the case of prospective clients, the Morningstar research analogy could be, “Help your clients achieve their goals, stupid.” This is a fantastic reminder that we, as technical practitioners, often think our clients are like us. Focusing on client goals, having relevant knowledge, maximizing client returns, and explaining concepts clearly should always be front and center. These are the things our clients actually care about! Our technical expertise and institutional research need to be applied in practice, not spoken about, in prospecting.