Good financial planning is typically built upon a personal relationship between the client and the planner, as trust is established to the point that the client is comfortable to share and engage with the planner, and take the advice that is given. Yet the reality is that while it takes time to build trust, it doesn’t necessarily have to be built face-to-face. In fact, as personal finance ‘celebrities’ like Suze Orman have shown, a remarkable amount of actionable advice can be implemented even if the person giving the advice and the person receiving the advice have never met in person at all! So what does it take to begin to establish trust with a prospective client before ever meeting face to face? As Orman demonstrates, the keys are that people work with people, expert credibility is important but not alone sufficient, and trust is built over time through repeated exposure to the planner. And in today’s world, the digital age is leveling the playing field; it’s not just about being on television or having a radio show anyone, because any planner can begin to build trust with potential future clients, through blogs, e-newsletters, videos, social media, and other channels of the digital world!
Enjoy the current installment of "weekend reading for financial planners" – this week’s edition starts off with an interesting article from the Journal of Financial Planning about how the industry can develop more effective risk tolerance questionnaires, along with a good article reviewing college funding strategies and a review of a new cloud-based software program to analyze all the different possible combinations of Social Security claiming opportunities for couples. From there, we look at a few practice management pieces, from how advisory firms can better build their own brand, to some tips about how to develop trust more quickly in new relationships with prospective clients, to the reasons why clients don’t refer (and what to do about it), and the increasing amounts that advisory firms are spending on technology with a focus on ROI. We also look at some articles highlight trends and opportunities in the industry, from the potential fallout in the 401(k) marketplace when the new fee disclosure rules take effect later this year, to the "career arbitrage" that’s occurring as one executive after another leaves the custodian, broker-dealer, and investment company environment to take on a position as a principal with an independent RIA. We wrap up with a look at the potential for a "Grexit" – the new term du jour for a potential Greek exit from the Euro – and a striking article from The Economist that asks whether the era of the public corporation is coming to an end, given the resurgence in everything from private equity to state-owned enterprises to partnerships around the globe. Enjoy the reading!
As the retirement income research evolves, an increasingly common question is whether the popular safe withdrawal rate approach is better or worse than an annuity-based strategy that provides a guaranteed income floor, with the remaining funds invested for future upside.
Yet the reality is that as it’s commonly applied, the safe withdrawal rate strategy is a floor-with-upside approach, too. Unlike the annuity, it doesn’t guarantee success with the backing of an insurance company; yet at the same time, the annuity is assured to provide no remaining legacy value at death, while the safe withdrawal rate approach actually has a whopping 96% probability of leaving 100% of the client’s principal behind after 30 years!
Which means an annuity is really an alternative floor approach to safe withdrawal rates – one that provides a stronger guarantee while producing a similar amount of income, but results in a dramatic loss of liquidity, upside, and legacy. Does the common client preference towards safe withdrawal rates and away from annuities indicate that in the end, most clients just don’t find the guarantee trade-off worthwhile for the certainty it provides?Read More…
One of the foundational principles of retirement success is to start saving early. After all, the longer that money can stay invested, the more compounding growth can work in your favor; all the better if your savings grow inside a Roth IRA and avoid the grinding impact of taxation.
Yet the reality is that clients really have two major assets: their financial assets, and their human capital asset. And when the client is young, the human capital asset is actually the bigger of the two by far. As a result, allocating savings towards human capital in ways that increase its value or growth rate can actually have far more impact than investments in financial assets; spending $2,000 on classes that produce a $1,000 raise in base salary can, over the next 40 years, generate nearly 20 times the wealth of merely saving the $2,000 in a Roth IRA and growing it for decades.
Does that mean that clients who allocate savings to retirement accounts when they’re young are actually making an inferior long-term investment?
Although Social Security benefits are a major part of retirement planning, since the Social Security Administration stopped mailing statements to workers last year, most planners have been limited in their ability to get updated Social Security information for clients – especially new clients who may not have a prior benefits estimate, and/or who may have never previously reviewed their earnings record.
Fortunately, earlier this month the Social Security Administration launched a new online platform allowing anyone to access their own Social Security benefits estimate and earnings record.
In response, many planners are now starting to walk clients through the process of claiming their online Social Security account – which can be done on the spot, in the planner’s office, in less than 5 minutes! – and reviewing the benefits estimate and earnings record as a part of their new or existing client meetings!Read More…
The delivery of advice is ultimately built on a foundation of trust; even if the client is otherwise ready to make a change, if the client doesn’t trust the advisor, the advice often won’t be taken and implemented. And because most planners struggle and work hard just to establish client trust through in-person meetings and a one-on-one relationship, many are skeptical that advice will ever fully shift to a more virtual world where trust must be built at a distance and possibly without ever having the client and planner meet in person at all.
Yet there is a surprisingly visible demonstration of how trust can be built effectively in a “virtual” environment where the person taking the advice may have never met the person delivering the advice: the Suze Orman show. Does that mean planners have much to learn from the success of Suze Orman, who has built a virtual relationship with millions of people who are all willing to act on her advice, even while so many planners struggle to build trusted relationships one in-person prospective client meeting at a time?Read More…