One of the biggest challenges we consistently face as financial advisors when creating a financial plan for clients is simply getting the data we need to actually do the plan in the first place. Because, without any information to enter into the financial planning software to begin with, it’s impossible to assess a client’s financial situation, show them the consequences of various trade-offs, and ultimately make our recommendations. Yet while for at least some clients, the problem with getting data is that they literally don’t know their own financial details in the first place – thus their need to hire a financial planner! – more often, the real issue is that the client doesn’t actually understand why they need to provide the data in the first place, and what they’re going to get out of the process.
In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why it’s not enough to just make the data gathering process mechanically easier for clients (e.g., with online data gathering forms instead of manually entering data into a printed data sheet), and why creating a Sample Financial Plan for prospective and new clients is an essential step in building enough trust with clients that they’re willing to gather and comfortable in sharing their financial information with you in the first place.
Historically, getting clients to complete data gathering forms has been a challenge simply because it’s tedious and time-consuming to fill out a paper form. And the situation is even worse for those who most need financial planning – because their financial lives are currently so disorganized – as the disorganization that makes them want financial planning is also the disorganization that means they don’t even know (and potentially don’t even know where to find) their own data to enter into a form in the first place!
Fortunately, as we move towards a more integrated digital age, the difficulty in obtaining financial planning data in the first place will be mitigated by account aggregation tools. Instead of manually entering information into a form, in the future all clients will have to do is link their accounts to their advisor’s portal, which will then automatically download the pertinent data into the planning software!
Still, even though some of these automations are starting to come online, a client’s hesitation to share their personal financial data often has less to do with the time involved, and more to do with the trust that clients need to feel – in the advisor themselves, and the value of the advisor’s process – before they allow an outsider to have a peek into their personal financial lives.
Because in a world where one of the biggest challenges financial advisors face – besides actually finding prospective clients in the first place – is demonstrating the real value of an intangible financial planning service, one of the most effective ways to get buy-in from new clients is to actually show them a Sample Financial Plan of exactly what they’ll get, and tangibly prove why it’s worthwhile. As even though the real value of what financial planners deliver is the actual process of defining goals, getting clients organized, and delivering advice, that sample financial plan is often the one and only tangible deliverable that clients can see to judge the value of the process.
The bottom line, though, is simply that if you are struggling as an advisor to get clients to share their financial information with you (whether via a data gathering form, or account aggregation), or are having trouble even getting prospective clients to sign on with you in the first place, it implicitly suggests that clients are just not seeing the value that you say you bring to the table. Because, even though we know that the financial planning process is worth it, ultimately, the onus is on us to show our clients that investing their dollars, time, and trust in your services is justified. For which the starting point is to create a Sample Financial Plan to really show clients the relevant value you can bring to them!
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when the broadcast is starting, at/around 1PM EST every Tuesday! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Well, welcome, everyone. Welcome to Office Hours with Michael Kitces.
For today’s Office Hours, I want to talk about one of the biggest challenges of doing good financial planning for clients, which is getting the data to do the financial planning in the first place, and the blocking points that can arise when trying to get data from clients or really just getting buy-in from clients in the process. Because the reality is there’s no way to do much financial planning for clients if you don’t have the data to understand and analyze their financial situation in the first place. Because without the data, there’s literally nothing to project. There’s nothing to analyze. You can’t help them evaluate trade-offs if you don’t have any numbers to do the evaluation.
Historically, it’s been really hard to get clients to fill out those data gathering forms we give them in the first place. At best, it’s time-consuming for them to fill out all the blanks on the data gathering form. And in many cases, clients are not actually that organized in the first place. They don’t even know all the information to put on the data sheet, and then they don’t want to go through the data gathering process because they’re embarrassed to realize and acknowledge that they don’t know about where all their own financial situation is in the first place. And of course, the irony is that, by going through the financial planning process, we often help clients to get more organized in their financial lives, effectively solving the disorganization problem, at least as long as the disorganization problem itself doesn’t become the blocking point to getting the organized solution.
Now, the good news is that this organizational challenge I find is starting to change as we truly enter what I call the digital age of financial planning. Because in the digital age of financial planning, we soon won’t need clients to fill out those data gathering forms anymore, not just because we’re shifting to an online digital environment where we don’t handwrite the information to a data gathering form, because soon we’ll type it into an online data gathering tool like PreciseFP, but the real coming change is that, as everything in our lives becomes more digital, from investments held in online accounts, mortgages and banking in online accounts, our spending happening through credit and debit cards, and increasingly even cash payments are being handled in cashless apps like Apple Pay and Google Pay, in a world where all that’s digital, there won’t be any need to enter any financial information ever into a data gathering form for financial planning. What’s going to happen in the future instead is we’ll simply link our financial accounts directly to the financial planning software, and all the financial information will just be downloaded automatically.
In other words, the future of financial planning data gathering isn’t about, like, more efficient data gathering software, it’s about account aggregation tools that turn a process that can still be hours for some clients just entering all that financial information, into a process of just minutes instead because clients won’t actually have to enter the data anywhere anymore, they’ll just have to link their accounts instead.
Now, point of fact, some financial planning software solutions already have this capability. eMoney Advisor, in particular, was a pioneer in using account aggregation embedded directly into financial planning software and helping to expedite the data gathering process directly through account aggregation. And in recent years, other planning software tools have slowly been building similar capabilities. RightCapital’s account aggregation capabilities. MoneyGuidePro integrating with Yodlee. But the challenge is that even as data gathering just mechanically gets easier as we go from filling out lengthy data gathering forms into simply linking financial accounts, it’s still often hard to get data from clients because some clients don’t actually want to link their accounts and turn over access to that account aggregated information in the first place.
And in fact, the unwillingness of a material segment of clients to link their accounts via account aggregation and facilitate all that data gathering and planning process is now one of the most common complaints and challenges I hear from advisors who are trying to adopt all the new technology, very much akin to advisors who struggled in the past to get clients to manually fill out the data gathering forms.
Now, for some clients, this is I think just a simple, like, general cybersecurity concern. It’s an education issue. We need to explain to clients how their data will be used, how the data will not be used. All the planning software companies have clear privacy policies to explain this. We need to educate clients as an advisor we won’t actually be getting access to do anything in their accounts. It’s just about getting the information share of their account balances and transactions into our planning software. And this, I think, will actually get a lot easier in the coming years because account aggregation is going through a shift, from what historically has been, “Give us your login credentials to your account, we’ll go we’ll scrape the information off the screen,” into the next generation of account aggregation, which increasingly is about getting direct data feeds that clients authorize but without even turning over their login credentials in the first place.
But even as we address the cybersecurity issues, I think there’s actually a more fundamental issue that’s cropping up with clients that won’t give data. And it’s the reason why data gathering was difficult when it was hours of manual time filling up forms, and it’s still often a challenge even as data gathering gets cut down to minutes linking accounts. And the problem is that, as financial planners, we’re not doing a very good job of showing clients what’s in it for them as the client to turn over all this data.
So I want you to engage in a little thought experiment with me. Think for a moment about how much you earn from a typical client to do a financial plan. And I’m not just talking about standalone planning fees you may charge but the entire compensation you earn for the planning relationship. Because that’s the real financial planning fee. It includes the commissions you earn for implementation, the AUM fees you get from the rollover at the end of the planning process. Because the reality is that clients can get almost any of the products themselves online now. They can buy an insurance product. They can implement an asset allocated portfolio online. There are plenty of direct-to-consumer insurance and investment providers and online portals to help them.
At the end of the day, whatever your compensation happens to be all rolled together, you’re not just getting that compensation for implementing a product or a portfolio, you’re getting that compensation for the advice and the plan you deliver. So take all that…or compensation from all the sources. Roll it into one number. For most advisors, that average revenue per client is several thousand dollars per year. That is the compensation you’re receiving for this financial plan you’re preparing, for which you’re asking clients to enter data or link accounts. So hold that number in your head for a moment.
Now, I want you to think about the financial plan itself that you prepare and deliver to the client. So maybe that’s a printed plan. Maybe it’s an electronic PDF. Maybe it’s in a nice binder. Maybe it’s done more interactively with the client as an experience in the conference room. So in the aggregate, this is all the compensation you’re getting to produce and deliver this plan, often thousands of dollars. This is the financial plan that the client is going to receive.
So the question now is this, not just is this dollar amount worth this plan that you’re offering, but what have you done as the advisor to show the client that it’s worth paying these dollars and putting in all that time and trusting you with all that data to get this financial plan deliverable that comes at the end? You know, we’re asking clients to pay all this money for what the end of the day is an intangible service that has just one tangible outcome, the plan, yet I find we spend almost no time and effort trying to show clients what they’re going to get for their often rather substantial amount of money commitment, cost commitment, time commitment, and trust commitment that they make to the advisor.
And the key element that I think is missing here is creating a sample financial plan for prospective and new clients to literally show them what they’re going to get. Because ironically, even though most of us, or at least those who tend to follow these Office Hours videos, are in the business of doing financial planning and delivering financial plans, I’m constantly amazed at how few advisors actually have and show a sample financial plan to clients. Even though I would argue it’s the single best way to get buy-in both financially and in terms of the time and trust commitment to do all that data gathering and account linking with clients.
Now, obviously, we can’t literally show another client’s financial plan because that’s a breach of client privacy, and you should be cautious about just taking the existing client’s plan and solely changing the names to Jim and Jane Sample, because if it’s a sample plan of one of your executive clients in a particular company, there actually may still be too much identifying information in there that someone else could figure out who it is, and now you’ve got a privacy problem again.
So you can take an existing plan if you want, adapt the clients a bit, make them sufficiently different that Jim and Jane Sample are no longer identifiable, but the point is to have a sample plan with the sample client, and ideally one who looks like a real client you work with and you would want to work with. Because, ideally, the actual prospective client or new client that you’re sitting across from when you give them the sample plan will see themselves in the plan. Will look at it and say, “Wow, this person’s financial plan seems really well-organized and worth the money. And wow, my situation is just like theirs, so this plan really is going to help me get more organized too.” And now that’s a client who wants to give you the data and engage in the process because they see what they’re going to get.
Which means not only is it important to create a sample financial plan, but it’s important to really think about who the sample financial plan is for. What’s the income of that sample client? What’s the net worth? What’s the assets? How old are they? If you mostly work with retirees, your sample plan should be a retiree. If most of your new clients are struggling with the timing of when to start Social Security, your sample plan should include a sample of your Social Security timing analysis. If you primarily work with small business owners, that sample plan should show how you handle small business owner situations. If your ideal client is an executive with stock options, where’s the stock option analysis? You can show them in your sample financial plan.
But beyond who the sample plan is about, the key is that it’s crucial for you to have something to show prospective and new clients, that they should be able to see and touch and hold on to and scroll or flip through as a sample financial plan. So again, think about this from the client’s perspective. What does it look like? Is it a PDF? Is it a printout? Do you just print a stack of white paper and pages and staple it at the top? Does it go into a nice binder? Does the output look mostly like boilerplate from financial planning software? Does it have your logo and colors? And what’s the size of the text? Is the font actually readable if you were an older client with weaker eyesight? Do the graphics look professional?
Now, I realize that some planning software allows for more customization in this area than others. And I’ll admit, even historically when I looked at our sample financial plan, I didn’t love all the pieces of it. We’ve been trying to improve it over the years. But the fundamental point is that most of us advisors earn thousands of dollars of revenue from each client that we do financial planning with, whether it’s the planning fee or implementation commissions or AUM fees later. And for several thousand dollars, we have to figure out how to make a sample financial plan and actually the actual plan that we deliver at the end look like it’s worth thousands of dollars.
Now, I realize that that can take a lot of time and effort to produce a nicer-looking, a fancier plan and offer a document that I’m well aware not all clients even read in full or crack the spine the day after you present it. And I’m not literally advocating to create something that will take you hours and hours of additional work to produce each time. You can do a lot of this by investing the time once to create a good template that looks a little better and a little more polished, and then using and building on that better-looking template over time.
But the point remains that the prospective client or new client is faced with a real decision at the start of the planning relationship, “Is what I’m going to get from this financial planning thing really going to be worth all the dollars it’s going to cost me? Is it going to be worth my time to gather all this data and turn it over? And is it really worth trusting all my personal or private financial information to this relative stranger who says he or she is a good financial planner who’s going to craft me a financial plan that helps me get my life in order?” It’s a lot of questions. It’s a lot of weighty questions that are really hard for most clients to evaluate because planning is this intangible service for which we always say, “Well, you know, trust me, in the long run, you’ll thank me once you’ve gone through the process.” And the only tangible thing they have to go on is a sample financial plan.
And so while I know the holistic value of what we provide is in the advice itself and the planning process we take clients through, value of financial planning is about way more than just literally the plan. Again, the reality is that the plan happens to be the only tangible thing clients have to go on to figure out whether to trust that the rest of the process is worth the cost and the time. So it’s perhaps not fair that the value of our whole intangible financial planning process over time might be judged by a single sample financial plan deliverable, but the reality is that it often is. That sample financial plan deliverable really does bear most of the burden in demonstrating to the new client that this will all be worth at the end. And if you don’t even have a sample financial plan, that may be the first indication as to why clients are hard to get buy-in from.
So if you’re struggling to get data from clients or to get them to link account aggregation or you’re just finding it difficult for clients to pay for financial planning or agree to go through the process in the first place, at the end, what it means is that they’re not seeing the value of financial planning. And I know it’s hard to describe the value of financial planning. It’s something we all collectively struggle with. But the first starting point is simply to think about creating a sample financial plan with the polish and professionalism to show that it’s worth the thousands of dollars and hours and hours of time that the client will invest in the process to get their trust and buy-in to go through the process with you.
And if you don’t have a sample financial plan or maybe doesn’t convey the professionalism that it should when you look at this thing you hand out and say, “This will cost you thousands of dollars and hours of time,” maybe it’s time to sit down and work on that. And that’s your homework. Because the truth is, it’s not enough just to be worth it as a financial planner. If you want to get clients, you have to show them it’s worth their time and investment in both the dollars, the hours they’re going to take, and the trust they’re going to give you to hand over their financial data. And we have to justify that by showing them what they’re going to get.
So I hope that’s helpful as some food for thought. This is Office Hours with Michael Kitces. Thanks for joining us, everyone, and have a great day.