Giving away the store?

“In my first meeting with potential clients, I focus on questions such as ‘What’s important to you?’; ‘How do you measure the success of your investments?’; and ‘How did you make your money?’

“I also ask investment policy statement-type questions related to the prospect’s financial requirements so I can prepare a proposal for the second meeting. That’s when the problem sometimes occurs. In that second meeting, I review what I like and don’t like about the prospect’s existing portfolio, given their goals, and, before presenting my proposal, I make sure what they said at the first meeting still holds true.

“However, when I review my proposal with prospects, I know they then can go and mimic it at a discount broker or with another advisor, especially since I feel obligated to let them keep the proposal. How can I let prospects know, gently, that I have done the work, but that they will not be privy to the details unless they decide to sign up with me?”

Every advisor has a different view on how much work to do and how much to “give away” before a prospect signs on as a client. In talking to successful advisors, I have found that most strike a healthy balance: they spend enough time and do enough work so that prospects are impressed and want to work with these advisors without the advisors giving away everything they would do.

Of course, some advisors address this issue by charging for an initial financial plan before getting into recommendations – a cost that may be credited back to clients who move their accounts over. But, given the resistance of the majority of today’s clients to paying for a plan, this is not an option for most advisors.

In deciding how much to share with prospects, recognize that you’ll never eliminate every prospect who is shopping for free advice. And if you take the stance that you won’t give anything away because you don’t want people “stealing” your ideas, you’ll severely limit your chances of success with the majority of prospective clients who are serious. That said, here are three guidelines for increasing the chances of turning prospects into clients without giving away the shop:

– Step one: have a clear process

Begin by identifying your approach to talking to prospective clients. Today’s reality is that it typically takes longer for prospects to make decisions than in the past, in part because there’s often an incumbent advisor you have to displace, and partly because prospects may be meeting with other advisors.

As a result, you need to define your approach when it comes to talking to prospects, with a view to getting to know them in a comfortable fashion while communicating your professionalism and value. I’ve written in the past about the “three meeting” approach with prospects:

In a fairly short and casual initial meeting, you and your prospect talk informally to get to know each other, allowing you both to assess whether there’s a fit and if you want to proceed.

In a second, longer meeting, you cover in detail the prospect’s current situation, assets and portfolio. You discuss the prospect’s goals and you might review his or her most recent tax return or any financial plan already in place. Note that you get into a level of depth in this second meeting that would be impossible if you hadn’t had that initial conversation to test for fit and to build the prospect’s comfort level with you. In essence, that first conversation earned you the right to probe deeper on your second meeting.

In the third meeting, you present your recommendations and ask for a commitment to move ahead and do business.

At the end of each meeting, you give your prospect the opportunity to opt out by saying something like: “For a successful partnership, it’s essential that we’re both comfortable about the possibility of working together and that you feel that you can be absolutely open with me. It does happen that sometimes people conclude at this point that another advisor would be a better fit. If you feel that way, whether right now or at any point before the next meeting, you shouldn’t be hesitant to let me know. Trust me that my feelings won’t be hurt. Good relationships depend on openness and trust, and if you’re uncertain about working together, it’s better that we identify this sooner rather than later.”

Note that when a prospect answers that they’d like to continue after being given the option to stop the process, their level of commitment goes up. In addition, you’ve struck a good balance between communicating interest in working together without appearing desperate to do so.

– Step two: create a test of seriousness

In addition to learning more about prospects, the other big advantage of multiple meetings is that they’re a test of seriousness for prospects. One advisor I know normally holds the first meeting with prospects at their home or office but schedules the second meeting at his office. After years of experience, he has concluded that if prospects aren’t prepared to come to his office for the second meeting, they aren’t truly serious. (This has the added benefit of setting expectations for meeting locations when prospects become clients.)

Follow your instincts here. If a prospect insists on getting directly to your advice on their portfolio or resists meeting a second time because they want to know what you think now, that’s a clear warning sign. The good news is that if a prospect doesn’t want to meet a second time, your investment of your time hasn’t been that great.

Some advisors use other approaches to cull prospects who are likely to waste the advisor’s time. One successful advisor suggests being cautious about investing extensive time with prospects who have held discount brokerage accounts for many years without working with an advisor. Unless such prospects can articulate a clear reason for talking to him, he finds that there is a low probability of converting them into clients.

Another veteran advisor looks for indications that prospects are willing to pay for advice in other aspects of their lives. If someone generally takes a do-it-yourself approach on things such as their taxes, preparing wills, planning extensive travel or selling their house, chances are he or she won’t be prepared to pay for financial advice.

– Step three: summarize your recommendations

American advisor coach Katherine Vessenes advocates using flip charts to summarize the client situation and provide an overview of recommendations. There’s a lot to be said for the concept of providing a high-level assessment of what you like and don’t like about a prospect’s existing portfolio and then laying out some broad thoughts on how you would structure the prospect’s portfolio if you were his or her advisor.

Depending on the situation, you could get into more specifics on one aspect of the portfolio (for example, the approach to international equities exposure). But if expectations are set at the outset, most reasonable prospects shouldn’t object to a high-level outline of the strategy you’d take until they make a commitment to work with you.

This overview strategy also speaks to the question of why prospects choose to work with advisors. Few clients select an advisor based on specific portfolio recommendations. Clients for whom this is the overriding factor may be the first to leave when you run into a period of underperformance. Rather, most prospects decide on an advisor based on their comfort that the advisor operates professionally, does a good job of listening, understands the client’s situation and will tailor the right advice for his or her needs. Clients also select advisors they like as people. One reason I like the approach of using flip charts is that it lets advisors ask more questions and engage prospects in conversation.

Finally, remember that things come up and people you meet with get busy. So, even with the best of intentions, some will fail to follow through after the second or third meetings, often because there’s no huge sense of urgency about making a change.

When that happens and a prospect doesn’t respond to your calls and emails or dithers about advancing the process, you have two options. You can write off this prospect as another “tire kicker” who wasted your time. Or, if you walked away feeling that this was someone you would like to work with as a client, offer to put him or her on the distribution list for information that you send to your clients.

Dan Richards is CEO of Clientinsights (www.clientinsights.ca) in Toronto. For more of Dan’s columns and informative videos, visit www.investmentexecutive.com.

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