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Kitces & Carl Ep 14: Projection-Free Financial Planning To Avoid A False Sense Of Precision

August 15, 2019 07:03 am 5 Comments CATEGORY: Kitces & Carl Podcast

Developing trust is one of the most important things financial advisors can do to establish lasting relationships with their clients. For which developing a comprehensive financial plan is often an opportunity not only to deliver value as a financial advisor but to deepen client trust by demonstrating the advisor understands them in the first place. Once clients have stepped into the proverbial Cone Of Trust, though, does a client really want (or need) to review and discuss a full-blown financial plan? Or would they rather just be told, very simply, what they specifically need to do to meet their goals and solve their problems? Alternately, is it still preferable for clients to review their plan in depth so that they might better understand where they are today and how decisions they make now will affect their plan in the long run… no matter how complex or lengthy their financial plan might be (and how much trust they’ve already imbued with from their financial advisor?)?

In our 14^th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards explore the various functions that a physical financial plan deliverable plays in the financial planning (and client relationship trust-building) process, share their viewpoints on how written financial plans can be used effectively to help clients, and discuss what ultimately matters most for clients, regardless of whether their financial plan is one page or requires a 2” binder and color-coded tabs.

Generally speaking, there are two (if not more) camps when it comes to the usefulness and structure of financial plans. Some advisors feel that detailed financial plans give a false sense of security by predicting future outcomes with unwarranted certainty; instead, these advisors prefer to establish trust and develop empathy without using the financial plan as a central conversation tool. Once a strong connection is formed, and they understand the client’s core issues and concerns, they often find it easy to discuss “good” behaviors the clients can follow to avoid mistakes and stay on track and do so using simple terms that apply to and make sense for the client. Interestingly, the level of trust that clients have in their advisor may often influence the degree of understanding they want/need to derive from their advisor, and/or their willingness to accept the recommendations being provided, based on the financial planning discussions they have together.

Other advisors, meanwhile, prefer to develop and discuss a detailed plan with clients and feel that their clients appreciate the clarity a good plan provides for their current financial situation, and that clients value understanding how different outcomes of important decisions considered today (such as funding education, modifying spending habits, and retiring early) will affect their overall financial picture years into the future. This is especially important because clients often fail to realize the powerful impact small changes in behavior and compounding growth can have on saving goals. Not to mention that delivering the financial plan itself can often be part of the trust-building process… as clients may not be willing to take the plan recommendations unless they’re also backed up by a thorough analysis (even if the client won’t read the analysis once they see it’s there and trust that it’s been done).

In the end, the key point is simply that advisors can use financial plans as effective tools for helping clients stay on track and make smart decisions, and that different advisors have their own distinct styles of conveying this feedback. Clients, too, are unique, and they have different preferences about how much of a full plan they want to see. Regardless of how advisors create and implement financial plans, though, clients need to be confident that their advisor is competent and that their recommendations are credible… which means either in advance of developing the plan or as part of the plan delivery process itself, it’s still essential to first establish real trust in the client relationship.

Kitces & Carl Ep 13: The Better Way To Send Market (And Other) Commentary Emails To Clients

August 1, 2019 07:01 am 2 Comments CATEGORY: Client Trust & Communication, Kitces & Carl Podcast

In our last episode, Kitces & Carl opened a proverbial can of worms by asking if financial advisors still, in this day and age, send out market commentary to their clients. And if so, what do they send? The general conclusion was that, yes, advisors still need to touch base with their clients, outside of their regular service cycle, using some sort of bulk communication tool or personalized report. Because doing so accomplishes several goals, including and especially that it demonstrates to clients that the person they trusted to manage their life savings is “paying attention.”

Regular communication, meanwhile, is especially important for those clients who are in the “Cone of Trust” (e.g., that stage of the relationship where a client has been with an advisor long enough to meet much less frequently and understands that the advisor will reach out if there’s a problem, and vice versa) because it helps ensure that the client actually stays in the Cone of Trust. Unfortunately, though, while our intrepid hosts were able to conclude that sending something is better than sending nothing (and especially better than anything that features a couple holding hands against a backdrop of a lighthouse on the beach), they ran out of time before they could answer the question: What should advisors be sending their clients?

So, in our (lucky) 13th episode, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss why it’s important to send regular commentary, provide a specific example of an easy and effective way to let clients know that you are thinking about them and their challenges, and why it matters so much that it ultimately comes from you (versus any number of white-labeled, off-the-shelf offerings).

In general, what advisors send out for regular communication generally fell into three buckets. Some use third-party commentary and other materials from a reputable source (some of which can be “white-labeled”), others question the value of even sending anything out at all (since the objective is for clients to not focus on and become concerned about short-term market gyrations), while still others insist no one should be sending content unless it was produced in-house (since the goal is for the advisor to establish their own expertise and authority).

For advisors who fall somewhere between the second and third camps, but whose skill set doesn’t include content creation, one effective strategy is to send out a collection of interesting articles (which may or may not have anything to do with money or “the market”), along with a short comment on why you found it useful. It provides a means of still connecting with clients (since ultimately, whether you connect frequently can be just as important as what you send to connect). And this way, when something noteworthy in the market does come along, your clients (or even prospects) are already accustomed to your cadence.

Ultimately, the key point is simply that it does matter that advisors send something to their clients and that they do so on a fairly predictable basis. Because if you are consistently communicating with clients, you can dictate the tone and focus of whatever it is you’re sending. Which means at the end of the day, what matters is that you do take some time, on a regular basis, to send something (preferably in your own words… even if it’s just a sentence or two about why you find a particular article useful). And when you do, you send a clear signal to your audience that you’re thinking about them… and about the responsibility you have as a steward of their life savings!

Kitces & Carl Ep 12: Communicating With Clients To Bring Them Under The Cone Of Trust

July 18, 2019 07:03 am 3 Comments CATEGORY: Client Trust & Communication, Kitces & Carl Podcast

Although “real” (i.e., holistic and comprehensive) financial planning encompasses far more than “just” investments, for better or worse, clients look to their financial advisors as people who are (at least) more knowledgeable than your average bear in regard to “the market.” Because, while providing advice on a client’s portfolio is just one part of the ongoing financial planning process, it’s natural for clients to worry about their investments (or more generally, their assets) and look to their advisors for reassurance that their life savings is being looked after… especially when the financial media consistently bombards them with clickbaity doom-and-gloom headlines. Which, in turn, leads to the question: should advisors send their clients market commentary to demonstrate the advisor’s expertise and try to soothe their nerves… or does doing so just risk making them focus even more on investment issues?

For our 12th episode of Kitces & Carl, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss if sending market commentary to clients actually helps solve any problems (or if it’s just a relic of a product-centric industry), what sorts of clients benefit the most from proactive communication (and why), and ultimately, why sending investment market commentary to clients may be a good thing to do… even if the majority of your clients never even read it!

As a starting point, though, it’s important identify the problem that advisors are really trying to solve by sending market commentary to clients, and which types of clients need such a solution. Because the reality is that, no matter what advisors send, those clients who are true delegators (and hired an advisor in the first place so they didn’t have to be bothered with keeping track of their investments) won’t be interested. However, many clients – even those who delegated their portoflios – do feel like they need to “check in,” at least from time to time, to be reassured that they made the right decision when they hired the advisor to tend to their life savings. Which often manifests itself by the client asking about current market affairs… not because they really care, but because they want to know that their advisor is really “on top of things.” And not only is it a good idea to make sure the advisor can answer their questions, but regularly sending out commentary is a good way to proactively address whatever the topic du jour may be once (rather than fielding potentially dozens of identical phone calls on the same investment concern).

Meanwhile, as client relationships mature over time, meetings naturally become less frequent (as trust levels have developed, and most of the early planning heavy lifting has already been done), so simply staying in touch even by sending out bulk emails with the advisor’s “commentary” can help prevent the dreaded transfer paperwork from landing in the inbox. As no matter how much we’d like to think we’ve “trained” our clients to stay focused on the big picture and ignore short-term market fluctuations, the reality is that sudden spikes in volatility will cause clients’ loss aversion instincts to perk up.

Ultimately, though, the key point is simply to realize communicating with clients outside of their regular meeting rotation matters, and sending them some form of investment commentary (whether it be from a third party or written in-house) is a great way of providing reassurance that you are versed in whatever may be going on in the market at any given time. Even if you always wind up with the same conclusion, which is that your clients are properly allocated and are served best by sticking with the plan you’ve developed with them.

Kitces & Carl Ep 11: What Do You Call Yourself? Planner, Advisor, Industry, Profession

July 4, 2019 07:05 am 4 Comments CATEGORY: Kitces & Carl Podcast, Planning Profession

Outside of telling someone that you sell used cars, there aren’t many ways nowadays to shut down a conversation faster saying that you’re a financial advisor. Because, after years of being constantly bombarded by headline after headline about the plethora of misdeeds committed by so-called financial advisors, combined with so many personal experiences with high-pressure sales tactics of unscrupulous salespeople, the public’s trust levels are understandably low.

And while other professions have specific education and ethical requirements (e.g., doctors, lawyers, and accountants), sadly, there are no rules around whether or not someone can call themselves a financial advisor (or any derivation thereof). Which only makes it that much more challenging for “real” financial advisors, who not only have to differentiate themselves from all the other advisors that claim to offer comprehensive financial planning, but also have to separate themselves from literally every other person who wants to call themselves a financial/investment/wealth advisor/consultant/planner… whether or not those jobs have anything to do with the actual delivery of financial advice. Which, in turn, leads to the question: what should financial advisors call themselves… without having to start making excuses immediately afterward?

In our eleventh episode of “Kitces & Carl”, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss the roots of various industry titles, why you might want to break the mold and call yourself something completely different (or not), and why the choice ultimately boils down to whether or not what you call yourself resonates with your target clientele.

From a historical perspective, the title of financial advisor originated when the industry was still very product-focused, as a way to differentiate from ‘just’ salespeople with a more consultative approach, as comprehensive financial plans themselves were originally a vehicle through which advisors could recommend (and then sell) their products. As the industry evolved, however, titles such as “wealth manager”, “investment consultant”, and “financial planner” came into the mix, as more advisors and their firms sought out new titles to differentiate and stand out from the crowd, and to sound more “high end” as advisory firms themselves have moved further up-market.

Understandably, then, many professionals in the industry would prefer stricter regulation around who can and can not call themselves any number of titles that imply that they’re providing financial advice (until/unless they’re actually in the business of advice and not product sales). Except that efforts to do just that have simply fallen flat given the vast resources and lobbying might of an industry still dominated by companies that manufacture and distribute financial products.

In the absence of any successful title reform, some advisors have decided to go with whatever standard title that most closely describes what they actually do and own it the best they can. Meanwhile, in an effort to break the proverbial mold, some advisors, particularly those with well-defined niches, have taken it a step further and adopted more creative titles that help them connect with the target audience that they want to reach (think “financial architect” or “financial physician”).

Ultimately, the key point is to make sure that your title accurately reflects the services that you provide, doesn’t get you into any regulatory trouble, and resonates with your target market. Because, in the end, what matters most isn’t what you call yourself, it’s that you’re comfortable and confident when you say it… and if you can invite people into the conversation along the way, then all the better!

Kitces & Carl Ep 10: Transitioning Long-Standing Clients To Create Room To Grow

June 20, 2019 07:07 am 4 Comments CATEGORY: Client Trust & Communication, Kitces & Carl Podcast

The perennial problem facing financial advisors throughout their careers (and especially at the beginning) is simply getting in front of prospective clients… and then convincing them to actually hire you and pay for your great advice. However, for those advisors who eventually reach the point where their business is sustainable, and have clients who understand the value that a “real” financial advisor brings to the table, the problem can easily morph from not having enough clients to keep the lights on… to having too many clients to be able to serve effectively (and no remaining capacity to add more and grow further).

Because the reality is that we can only do so much before our calendars (and our brains) reach their limits. It’s at that point where the most obvious answer is to start hiring some team members to help. But that solution can create all sorts of new challenges, and there are plenty of advisors aren’t interested in all the other stuff that comes along with hiring and managing employees… and find that they’re stuck as a result. They don’t have room for more clients, and they’re not interested in hiring and managing employees to create more capacity. And so the question then becomes: how can you, as a financial advisor, create room in your practice to be able to start growing again, especially if you do not want to increase your staff headcount (and management responsibilities) in the process?

In our tenth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication expert Carl Richards sit down to discuss some reasons you may need to start transitioning long-standing clients (some of whom may have given you a shot early on when no one else would, but consequently pay you far less than what it takes to service them) to make room so you can help others, some practical steps for communicating such a transition to those clients, and why arguably it’s your duty to do so… in order to ensure that all of your clients are getting the level of service they deserve.

As a starting point, it’s important to recognize that creating more capacity in your firm by transitioning away some long-standing clients isn’t about just booting those clients to the curb for the sole purpose of finding other, more profitable clients. But the reality is that the clients who you’ve “outgrown” would probably be better served somewhere else anyway. Or put more simply, your “C” clients are almost always someone else’s “A” clients. Which means transitioning them can be win-win-win for you (creating capacity), for the client (receiving better service as an A client), and for the other advisor (who may be thrilled to grow with the clients that aren’t a good fit for you anyway now!).

That still doesn’t solve the problem, though, of communicating this to your clients, some of whom might well have their feelings hurt by your decision. Practical ways of effecting this transition include: raising your minimum fees (in order to serve your clients well, and do all the things you do for them through the year) and letting the client decide for themselves if they value your (higher-fee) advice enough to continue on as your client, sitting down and simply telling them that you’re changing the direction of the firm and (with their blessing) would like to facilitate their transition to another advisor who’ll be a great fit for them, or simply telling them that you’ve been examining all of the relationships in your practice and feel that you’re simply not a good fit for them at this point in their lives.

Because at the end of the day, you are running an advisory business, and that’s nothing to be ashamed of. Taking on the responsibility of advising clients on the best way for them to manage, grow, and use their life savings is the very mission of that business, and ultimately you have to ensure that the direction of your practice is aligned with what your clients need… and if it’s not, it’s your job to tell them.

Kitces & Carl Ep 9: How Do You Optimize Your Practice To Maximize Your Happiness As A Financial Advisor?

June 6, 2019 08:03 am 6 Comments CATEGORY: Kitces & Carl Podcast, Personal/Career Development

Generally speaking, there are two types of unhappy financial advisors. One is the advisor who is having trouble just making it in the business in the first place, who is struggling to find enough clients to make ends meet. The other type is the advisor who might have all the outward markers of success (clients, revenue, profits) but has reached a point in their career where they are supremely unhappy… and often end out feeling trapped, too.

Because, as is often the case for advisors practicing under the recurring revenue AUM model, clients tend to stick around. And while that is undoubtedly a great thing, it can also end out being a double-edged sword, and lead to “practice creep”... where, after a certain number of years of building a book of business, an independent advisor with an otherwise solid lifestyle practice may grow past their personal capacity and find that they have accumulated more clients than they can service by themselves. Which then forces the advisor to hire some staff to help. And (again) while that’s not a bad thing, the advisor can ultimately reach a point where they’re the CEO of a small advisory firm and are spending most of their time managing employees rather than doing what they set out to do in the first place, which was to serve their clients! Which ultimately leads to the question: How can advisors avoid this “accidental business owner” trap, and instead build a business that is optimized to maximize your own happiness?

In our ninth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards sit down to discuss why some advisors wind up being unhappy in an otherwise “successful” practice, how some advisors have maximized their happiness by being intentional about building their business the way they want - or even “right-sizing” the advisory practice if necessary – and a few actionable ideas for advisors to do the same.

One strategy that has worked well for advisors is to figure out what outcome you’re trying to reach in the first place (whether that be a certain level of income, or amount of time you have to spend with the people you care most about) and make that the primary thing that you measure in the business. After all, our natural tendency is to direct our efforts to improve whatever we see measured and look at on a daily basis… so it a good idea to make sure that we’re measuring the things that really mean the most to us. Whether that’s the number of clients or amount of revenue in the business… or the number of hours we work, the number of hours we don’t work, or the vacation days we take.

And for those advisors who have already reached the point where they’re feeling unhappy with their current business structure and need to figure out how to get off the proverbial rollercoaster, it’s essential to understand that, although we have a duty to our clients, we also have a duty to ourselves as well. Because if we are absolutely miserable with whatever situation that we are in, we will eventually (and inevitably) experience a negative impact not only for ourselves, but for our clients as well. Which means it’s our responsibility and even our obligation to try to fix it.

So, if you’ve gotten to the point where you’re feeling squeezed by practice creep – unhappy with the business despite it being outwardly financially successful – or if you simply want to avoid that in the first place, then remember that it’s perfectly okay to give yourself permission to build your business in a way that actually makes you happy. And measure and optimize for whatever really matters most to you!

Kitces & Carl Ep 8: What Would You Do With Your Time If You COULD Be More Productive As A Financial Advisor?

May 23, 2019 07:03 am 4 Comments CATEGORY: Kitces & Carl Podcast, Personal/Career Development

Last fall, Kitces Research published its first study measuring how financial advisors actually spend their time. The analysis revealed that advisors in the aggregate work an average of about 43 hours per week… yet when we asked about the time they spend on all the various task that they have to accomplish during the week, the total came out to a whopping 52 hours, suggesting that perhaps we’re far more buried in our work than we realize. Yet that shouldn’t be terribly surprising, since humans tend to be notoriously bad about making aggregate estimates, like the amount of time we spend looking at our phones or the number of calories we take in on any given day.

In our eighth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards sit down to discuss how financial advisors are spending their time, strategies that can help advisors focus more on what they’re best at… and what might be accomplished by increasing your business (and personal) efficiency in the first place.

For instance, despite being a business that’s all about serving clients, a deep dive into the data reveals that advisors actually only spend about 20% of the time meeting with clients. Which could mean that, despite all the great technology that’s come online in recent years, it hasn’t accomplished its most important task: to actually reduce the time we spend on all the other things that we do when we aren’t sitting across the desk from our clients. As in practice, beyond the 20%-time in client meetings, advisors still spend significant time on such activities as meeting prep and follow-up (30%), business development (20%), and investment management (11%)… with the remaining time being spent on operations, professional development, and various administrative duties.

Of course, there are some challenges around spending more than 20% of your time with clients (since we tend to reach our mental capacity once we’re serving somewhere between 100-150 clients in the first place, and clients will only meet “so many” times per year), there’s still an opportunity to get better at spending more time at the things that only we can do, and handing off the remaining responsibilities for those tasks that don’t need our unique expertise, to begin with. Because the reality is that the chances that we’re really good at all those “other” things that take up the majority of our time as advisors are about zero anyway! In fact, the data shows that when advisors have someone they can delegate tasks to (e.g., a paraplanner or associate advisor), they have (on average) 64% more clients and have 80% more take-home pay than advisors that don’t… simply due to the fact that they end out using the extra time to spend with more clients!

Ultimately, though, we do still need to ask ourselves, “to what end?” Do we really want to become so efficient and have so many clients that we can’t even remember who they are when we meet with them? Or instead, is perhaps the point of greater efficiency less about doing more stuff, and more about spending time on things that are important to us instead? In other words, we spend so much energy and time helping our clients find their “why” and focus on what matters most to them… so maybe we should do the same for ourselves, too.

And so, the question becomes: if you’re spending 20% of your time as an advisor serving your clients, what would you do if you could free up more of the other 80%?

Kitces & Carl Ep 07: Authenticity Vs. Professional Credibility And Admitting Your Own Financial Sins

May 16, 2019 07:03 am 1 Comment CATEGORY: Kitces & Carl Podcast, Personal/Career Development

As a financial advisor, credibility is crucial to the advisor-client relationship; after all, if clients don’t believe the advisor’s advice is credible, then they’re not likely to follow through on it (and/or may not be willing to hire the advisor in the first place). Which, similar to professionals in other knowledge-based fields, often results in feeling the pressure to always have all the answers, and always have your own financial house in order… out of fear that a client may not trust and find credible the advice of an advisor who has made poor financial decisions themselves and hasn’t followed their own advice. Except the reality is that financial advisors are human beings too, we can all make mistakes, and in practice, it’s often our prior negative financial experiences as advisors that actually lead us to want to help others with their money in the first place. Which can actually make the financial advisor more authentic and relatable to clients who are experiencing similar challenges themselves!

In our seventh episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards sit down to debunk some long-standing myths around what it really means to be a “credible” financial advisor, why authentically owning up to your personal financial mistakes actually helps build trust and credibility (and might even end up helping you gain new clients), and why being relatable as a human being (who makes mistakes from time to time) may be one of the more important traits you can bring to the table as a financial advisor.

As a professional (whose fruits of that profession literally keep the lights powered on), one of the hardest things to do show your own vulnerability by admitting that you’ve made poor financial decisions yourself in the past, and/or don’t have all the answers to every question or problem. But the reality is that, if we can own up to our own poor financial decisions and mistakes that we’ve made along the way, both to ourselves and to our clients, it puts us in a much better position to meet our clients with empathy. Which in turn allows us to be less judgmental (and for clients themselves to feel less judged), and in a much better position to not only help them with the technical aspects of implementing the sound financial advice we give them, but to support their financial wellness as well (which is our ultimate goal in the end).

Because to achieve that goal and get clients to be honest with us, and themselves, about what they really value so that we can help them apply their capital towards what’s most important to them, it’s crucial to make sure that clients can relate to us as advisors. Which often means trying to bring yourself off the “advisor pedestal”, and meeting your clients where they are. Getting clients to talk openly about the financial mistakes they’ve made isn’t easy, but if you are open to sharing your own story, then you can help make them feel more comfortable by making it clear that you aren’t sitting there judging them (because you’ve “been there”, too).

And while there is such a thing as “over-sharing”, the key point is that authentically and openly admitting that you don’t know everything, and don’t always make optimal financial decisions, can ultimately help the people that you want to serve, and by extension, strengthen you own credibility as a professional in the process. Because all that fear that you have about feeling judged if you own up to your mistakes is the exact fear that every client who comes into your office has about being judged themselves by someone who they (wrongly) think has all the answers.

Kitces & Carl Ep 06: Building Resiliency For The Stress Of Being A Financial Advisor

April 25, 2019 10:41 am 7 Comments CATEGORY: Kitces & Carl Podcast, Personal/Career Development

A big part of a financial advisor’s job is to be a release valve for their clients’ financial anxieties… it’s an essential aspect of how we add value in helping them manage their “behavior gap” and avoid making poor financial decisions for themselves. Because unfortunately, no matter how well we prepare our clients conceptually about the importance of keeping an even keel during the inevitable bouts of market volatility (or worse), the concept of “market risk” (and how clients will react to it) often feels purely theoretical until it actually happens… or as Mike Tyson so eloquently put it, “Everyone has a plan until they get punched in the mouth.”

And when market turmoil happens, it creates a huge amount of stress for clients, who oftentimes will then turn towards their advisors as they look for someone to blame. But while that can serve as the foundation for memorable “war stories” that advisors can bond over at industry events, the dynamic that isn’t discussed nearly as much is mental and emotional toll we as advisors face ourselves in serving our clients during severe market corrections or even deep bear markets. In fact, in the aftermath of the financial crisis, one study found that advisors ended out experiencing symptoms also associated with post-traumatic stress disorder! Which, in turn, raises the question: How can advisors prepare themselves mentally and emotionally to help not only their clients, but also themselves, cope with the stresses inherent in serving clients through their own times of stress?

In our sixth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards sit down to discuss proactive steps advisors can take to prepare themselves to deal with and manage the stresses inherent in being a financial planning professional, some common but less-well-known sources of advisor stress, and how a subtle shift in mindset can help advisors make self-care a priority.

As a starting point, the best way to put yourself in a place where you’re able to deal effectively with the inevitability of stress is self-care, which only gets more important as we age and includes (among other things) diet, exercise, and rest (both physical and mental). Meanwhile, as an “accountability partner” who’s there to support and guide clients towards reaching their goals, you also need to have a support system that you can reach out to when things get tough, including family, colleagues, a mentor, and other industry peers. Because, just as your clients need someone they can vent to when it seems like everything is falling apart around them, you also need to have a group of folks you can turn to when you need to express your frustrations and anxiety. It also may mean allocating a part of your personal budget towards hiring your own “accountability partners” to help you stay (get?) fit, eat right, and establish a healthy work-life balance… which will almost certainly end out providing a positive ROI for you both personally and professionally.

Ultimately, the key point is simply to realize that as a skilled financial advisor, you are still no good to your family, friends, and colleagues if you’re stressed and unhealthy yourself, and you certainly won’t be able to provide the level of service that your clients expect… and deserve. And in order to do that, perhaps a smart approach might be to stop treating things like rest and recreation as a “reward” for working hard, and instead start thinking about those things as a prerequisite (that needs to be actively scheduled for on your calendar) for doing good work in the first place!

Kitces & Carl Ep 05: Do Clients Really Value Getting Help Managing Their Behavior Gap

April 11, 2019 07:03 am 4 Comments CATEGORY: Client Trust & Communication, Kitces & Carl Podcast

One persistent struggle for financial advisors has been to find ways to communicate the value that they bring to the table. Fortunately, several recent studies have tried to quantify that value - down to a specific number of basis points annually – and have generally shown that financial advisors can more than cover their advisory fees with a wide range of value-added benefits… most significantly, by helping clients overcome the dreaded “behavior gap” that exists between the returns of the market, and the (lesser) returns that investors would otherwise realize on their own due to their behavioral biases.

Unfortunately, however, a recent Morningstar survey of almost 700 individual investors found that the advisor’s ability to help “control their emotions” is perceived as the least valuable service an advisor can provide from the consumer’s perspective… even as it’s the most valuable benefit from financial advisors according to the advisor research! Yet this ironic gap in the value of getting help with the behavior gap actually makes sense, since investors themselves often don’t see that their behaviors are a problem in the first place.

Nonetheless, this gap between what the research suggests is a benefit of working with a financial advisor, and what consumers state they actually value, raises the question: Does the real gap lie between market and investor returns, or between what investors actually value and what advisors think they value?

In our fifth episode of “Kitces & Carl”, Michael Kitces and financial advisor communication guru Carl Richards sit down to discuss the question of whether advisors should even bother trying to communicate the value they provide when helping clients manage their “behavior gap”, why attempting to convince prospects that you can help them manage their behaviors is perhaps an uphill battle, and how maybe the best way to overcome the behavior gap (and the perceived value of getting help with the behavior gap) is by shifting a client’s perspective altogether.

The starting point is to realize that most clients don’t initially seek an advisor’s help because they suddenly decide they need help clarifying their life goals or making better decisions at key junctures; they come to an advisor first and foremost because they have an acute pain point they need help with. And while for some new clients, that pain point may be due to devastating decisions in the depths bear market - which then prompts them seek out an advisor because they (or more often their spouse) realize that they do need guidance when it matters most – for many consumers, the pain point that drives them to a financial advisor is about some other non-portfolio issue in the first place.

Furthermore, even if many people do undermine themselves by making poorly timed decisions, it’s nearly impossible to “sell it” as a benefit of entering into an advisory relationship, since a client will first have to admit to themselves that they are so bad at making financial decisions that they have no other choice than to hand the task off to someone else! And denial about our own failings – even if it’s true – can be quite powerful. Which is why, in general, trying to position yourself as someone who can help clients “control their emotions” or change their “bad” behaviors is challenging at best. Which is not to say that managing those clients’ behaviors isn’t beneficial… it simply means that people who are in most need of that help will likely have a hard time admitting it.

Ultimately, the bottom line is that advisors do truly add value for their clients by managing the “behavior gap”… but selling that as a key feature of the relationship probably isn’t going to get most advisors very far. Instead, the best way to help clients close that gap is by connecting their use of their capital with what they say is important to them in the first place. And the only way to help a client down that path is to absorb with empathy where they are presently, and then gradually help them understand continuing to make them same decisions that they’ve made in the past won’t get them different results. Which creates the real opportunity for financial advisors to demonstrate their value!

Kitces & Carl Ep 14: Projection-Free Financial Planning To Avoid A False Sense Of Precision

Kitces & Carl Ep 13: The Better Way To Send Market (And Other) Commentary Emails To Clients

Kitces & Carl Ep 12: Communicating With Clients To Bring Them Under The Cone Of Trust

Kitces & Carl Ep 11: What Do You Call Yourself? Planner, Advisor, Industry, Profession

Kitces & Carl Ep 10: Transitioning Long-Standing Clients To Create Room To Grow

Kitces & Carl Ep 9: How Do You Optimize Your Practice To Maximize Your Happiness As A Financial Advisor?

Kitces & Carl Ep 8: What Would You Do With Your Time If You COULD Be More Productive As A Financial Advisor?

Kitces & Carl Ep 07: Authenticity Vs. Professional Credibility And Admitting Your Own Financial Sins

Kitces & Carl Ep 06: Building Resiliency For The Stress Of Being A Financial Advisor

Kitces & Carl Ep 05: Do Clients Really Value Getting Help Managing Their Behavior Gap

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