Planning for life

“In life planning,” says Prem Malik, investment advisor with Queensbury Securities Inc. in Toronto, “the needs of the clients, not their money, come first.”

This strategy involves understanding the life choices your clients want to make – choices based less on the destination and more on the journey or direction chosen, says Francis D’Andrade, vice president with Hahn Investment Stewards and Co. Inc. in Toronto and author of the book Am I going to be OK: Achieving Financial Comfort in Today’s World.

What sets life planning apart from conventional financial planning?

“Theoretically, there shouldn’t be a difference between life planning and financial planning,” says Barry LaValley, president of the Retirement Lifestyle Center Inc. in Nanaimo, B.C., “if traditional financial planning is done properly.”

Many financial advisors learn about their clients only to the extent required through the standard know-your-client (KYC) process, LaValley says. But KYC forms meet only the minimum requirements for the client/advisor relationship as prescribed by regulators.

Most advisors think in terms of helping their clients achieve their financial goals within a desired time frame. Advisors speak to their clients about issues such as market performance, investment risk, financial returns and product selection.

These advisors emphasize empirical information because financial planning deals with hard data, says Rick Dell, senior consultant with Investors Group Inc. in Sherwood Park, Alberta.

Life planning, on the other hand, deals with “soft” information from the emotional side of your clients.

Financial planning, D’Andrade says, goes hand in hand with life planning: financial planning is the tool that enables your client to fulfil his or her life goals; life planning is the process of determining those goals. The difference comes down to clients having the money to do the things they want to do.

– From the concrete to the abstract

Clients’ life goals naturally are more abstract than financial goals. You can’t put a monetary value on life goals. For example, your client might say: “I don’t want to be like Mom and Dad and worry about money.” You cannot put a specific dollar value on such a goal.

Using the life-planning process, identifying this goal can be a starting point in establishing a plan to ensure that your client will not have financial worries.

On the other hand, says Patrick French, director of financial and retirement planning with Edward Jones in Mississauga, Ont., your client may have a more specific desire, such as “owning a houseboat” or “starting a consulting business” when he or she retires.

Identifying these goals is an early step in developing a plan that helps your client achieve these ambitions. As well, ascertaining your clients’ life-planning goals, Malik says, requires an in-depth knowledge of their values, ambitions and fears.

“Certain goals just don’t come up in a discussion about money,” Malik says. “You have to dig deeper.”

Malik provides the example of a client whose ancestors had migrated from India to the Caribbean 175 years ago. Having lived in Canada for more than 30 years, the client yearned to discover his “roots” in India.

“Helping the client achieve this goal involves money,” Malik says. “But it would bring fulfilment, which money can’t buy.”

Not all non-financial ambitions are life-planning goals. For example, Dell says, goals such as going on an annual vacation to Europe are not necessarily life-planning goals.

“Travel” can be a pat answer many clients give – or a box they check off – when asked what they would like to do in retirement. But the desire to travel often is not tied to the client’s more profound values and ambitions, which can be revealed only through more in-depth conversations.

“Clients tend to default and say they would like to travel a lot during retirement,” Dell says. “But annual travel is more a financial-planning objective, for which the cost would be accounted for in projected cash flows. There is a big difference between leisure activities such as going on an annual vacation and the more fulfilling goals that clients look forward to achieving.”

To put this difference in perspective, D’Andrade says: “Financial security provided through financial planning fulfils an economic threshold. But personal fulfilment provided through life planning satisfies an emotional threshold.”

Still, he cautions, these two areas can overlap – and they can mean different things to different people.

– A process for life planning

The life-planning process, LaValley says, should take into consideration the following seven areas:

1. vision and values

2. health

3. work

4. family

5. leisure and lifestyle

6. home

7. financial comfort

The overall process examines how clients feel about each of these areas from an emotional standpoint.

“Advisors think clients have financial goals,” LaValley says. “But, in reality, they have life goals. There is a relationship between money and their life goals.”

Your role, as an advisor, is to put money in the context of life by getting your clients to think of money in a different way.

For example, D’Andrade says, using the life-planning process, you would encourage your clients to think of insurance as “family protection.” Similarly, clients can regard putting a retirement plan in place as “creating a feeling of security.”

This approach allows your clients to get a better appreciation of the value of money as it relates to their life goals.

– Get clients to open up

A big challenge in life planning is to get your clients to discuss their life goals openly and honestly.

“Most clients have difficulty explaining their goals,” Malik says. “You have to delve deep into their lives to find about their history, values, beliefs, principles and expectations.”

Clients often expect you to focus only on the quantitative aspects of financial planning and consequently do not offer any personal information about themselves.

“Not everyone is comfortable with sharing personal information,” Dell says. “It takes courage [on the part of the client] and prodding [by you] to get clients to open up.”

There is no cookie-cutter approach to get clients thinking about what they would like to accomplish in life. The key to uncovering this important client attitude, LaValley says, lies in the discovery process, in which you strive to find out what your clients really want. But that is no easy task.

“Clients themselves [often] don’t know what they want,” LaValley says. “And you have to help them understand and clarify their goals.”

To be a life planner, he says, you have to coach your clients in putting financial issues in the context of life.

“Talk about practical things,” LaValley says, “not how the markets are performing.”

Getting to know your clients well enough to develop a life-planning process takes several conversations about those seven life-planning categories – and about other topics unique to that client.

LaValley uses picture cards to portray the different areas of discussion visually to enhance the discovery process.

– Emphasize life, not money

It is important to note the distinctions between the life-planning discovery process and the financial planning process.

Discovery about money, LaValley says, is a different activity from discovery about life goals. The life-planning process provides the opportunity to review the client’s financial situation and then determine whether there are any gaps in the client’s ability to meet his or her life goals.

Alternatively, you and your client can take a collaborative approach in figuring out how your client’s life goals can be met, given their existing financial situation.

You and your client might determine that it will be necessary to make sacrifices to achieve certain life goals.

“Sometimes, clients want to have it all, but really can’t,” Dell says. In these cases, he adds, you have to get your client to “make trade-offs.”

For example, your client might have to postpone retirement for two years in order to achieve his or her life goals.

It is not necessary to look at all life goals from only a long-term perspective. Some goals can be attained in the short-term, or incrementally. LaValley likens this approach to “eating an elephant, one bite at a time.”

– Ask the right questions

The life-planning discovery process, French says, should be disciplined and structured and aim to help your clients understand the “what” and “why” of the planning process. You and your client should work together to identify and examine where the client is today, where the client wants to go and what the client has to do to get there.

French suggests expressing goals using the “SMART” mnemonic, which stands for “specific, measurable, attainable, relevant and time-bound.” The objective is to get your client to ask: “Can I get there? How do I get there?”

“If you take a purely quantitative approach to client discovery,” Malik says, “you’re in the wrong business. You must be able to combine the quantitative aspects of financial planning with a qualitative approach.”

The quantitative approach used in traditional financial planning, he adds, does not provide emotional intelligence.

French says you should never start a client interview with a risk-profile questionnaire. Instead, leave that for last.

He suggests using effective interview techniques, such as asking open-ended questions. For example, you might ask: “What are your life’s dreams? Tell me about your family? What would you do if you had all the money you need?”

And you may need to ask the same question in a different way if you want more information. Explains French: “You want to take the pulse of your client.”

In addition to asking questions, Malik says, you should be a good, empathetic listener.

“Pace, rather than lead your client,” Malik says. “By putting him or her in a position of power, you allow [your client] to become more relaxed and more apt to tell you what you want to learn about them.”

Malik uses storytelling as a technique to make clients more comfortable. Telling hypothetical stories about other people’s situations can help you earn your clients’ trust and urge them to share more about themselves, especially if they can relate to the stories you tell. Telling stories, Malik adds, is one of the most powerful ways of getting the attention of clients.

Your goal, Dell says, is to “discover the things that give meaning to your clients’ lives, and to determine what would prevent these things from happening.”

When you understand your clients’ life goals, he says, you then can apply traditional financial planning tools.

“Once you have developed a close relationship with your client,” French says, “you may find that although investment returns matter, they are not necessarily the most important aspects of the relationship.”

– Make it an ongoing process

You will need to revisit your clients’ life plans over time to incorporate changing circumstances and to help older clients through life transitions, such as preparing for retirement and transferring the estate.

“The conversations evolve to incorporate a broader range of subject matter,” French says, “such as tax and estate issues, in addition to the traditional investment-management discussions.”

In life planning, Dell says, the client discovery process never ends. “You learn more during each client conversation or portfolio-review session,” he says. “You’re never caught by surprise and you can adjust their plans to meet changing circumstances.

Some advisors incorporate life planning and traditional financial planning into a single activity. Life planning can enhance your client retention, help you build greater trust, establish deeper client relationships and get more referrals.

© 2013 Investment Executive. All rights reserved.