Fixing the financial planning process

The problem

Today’s financial planning process typically is too onerous – that is, too onerous for clients and too onerous for financial advisors. According to Michael Kitkes, a leading financial planner in the U.S., American advisors report that half of financial plans require more than 10 hours of preparation after completion of the discovery process; that’s a disproportionate amount of time, considering the complexity of most clients’ needs. As a result, only one in four plans are delivered to clients within 14 days.

And here’s what the writer of that Forbes column wrote about the client experience:

“If you collected a sample of financial plans prepared by planners from across the country, you may very well conclude the objective of financial planning is to take subject matter that has already confounded the advice-seeking client and make it even more baffling. As page counts, pie charts, graphs and projections mount, clients’ hopes of bringing clarity to their personal finances are dashed.”

Some advisors view planning as an integral part of the value they deliver, while others take the view that developing plans entails a big effort that is of little benefit.

If you’re in the second category, there’s a solution: change your approach to financial planning – from what you call it, to the process you take clients through to what you do with the result.

Some tips to guide you in that process:

– step 1: delete “financial planning” from your vocabulary

Let’s start with what we call the “financial planning process” and the end-product. One successful advisor talks to prospects about creating a “road map.” Clients viscerally understand that a road map gets them from where they are now to where they want to be. If you choose to use another term, look for one that is active and concrete rather than the word “plan.”

– step 2: make gathering info easy

Get a clear understanding of what the client is spending now. The problem is that compiling a list of expenses is intimidating and easy to put off.

First, never send your clients home with a sheaf of blank forms to complete. Instead, suggest that one of your staff sit down with them and help them through it.

And look for shortcuts. This doesn’t have to be exact to be useful. One advisor employs average expenses for current retirees as a starting point. Another uses average household spending from Statistics Canada as a starting point, asking clients to identify, for each category, whether they think their spending will be higher, lower or about the same as the average amount.

– step 3: get clients involved

One of the reasons why many financial plans sit on the shelf is that clients don’t feel actively involved in the process. One advisor has replaced traditional financial plans with what she calls “real-time planning.” She meets with clients in her boardroom and attaches her laptop to a projector, highlighting the various decisions that clients can make. This advisor is able to input changes on measures such as retirement age, savings levels and rate of return assumptions on the fly and show the impact of these changes on the screen.

Thus, clients are much more engaged. This advisor still emails her clients a summary of their conversation afterward, but has dispensed with the printed and bound financial plan that she used to provide. She finds that clients don’t miss that document in the slightest.

– step 4: adopt a scenario approach

One of the challenges in developing financial plans today is the rate of return assumption on stocks and bonds. Depending on who you listen to, over the next 10 years, you can go all the way from a real return on stocks of 2% to the long-term real return of 7%. Choose a number that’s too high and you strain credibility and risk a shortfall; too low and you may project a dispiriting outcome that shows clients are unable to come close to their goals.

So, rather than picking one number, consider using the scenario approach to planning that companies use for strategic planning. Have three cases – low case, mid-range case and high case – with the clear understanding that these forecasts will be updated annually. This helps clients focus on a realistic number.

– step 5: adopt “less is more”

Ludwig Mies van der Rohe, one of the pioneers of modern architecture, coined the expression “less is more” to describe his approach to design. The same credo can apply to financial plans. Include all the backup if you feel the need, but what matters is the five-page executive summary that highlights key conclusions and recommendations – unless clients really want to, they don’t have to read more than the executive summary. Maintain momentum by ensuring that your followup meeting to review recommendations happens within two weeks of the discovery meeting.

– step 6: use annual updates

One client recently complained to me that after investing substantial time to develop an in-depth financial plan, it never came up in conversation again. The best plans are living documents, with clients having the clear understanding that forecasts will be updated annually.

– step 7: blend pain and gain

Some clients will be able to hit their retirement goals with few changes. For others, regaining control of their financial future will entail making trade-offs. As part of your road-mapping process, consider building in a provision for an annual reward for clients immediately after your annual review. Whether it’s a week in the Caribbean or a long weekend in a nearby city, having something to look forward to can help to maintain client buy-in.

Take action

When doing reviews, consider saying something along these lines: “Recently, I’ve been talking to some new clients about the possibility of working together. They told me that they were concerned about being able to retire when they’d like and about outliving their savings. To what extent is this a concern for you, even a little bit?” Depending on what answer you hear, a followup conversation may be required.

An effective planning process is key if you wish to position yourself as a retirement specialist. Consider whether revisiting your approach to financial plans needs to be on your to-do list.

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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