How investors think about time plays a big role in the framework we develop for our clients. To better understand an individual's time frame, it's critical we ask really great questions so we can craft a financial plan and process that reflects the client's goals and needs.
I know it's tempting to try to shortcut the system and make assumptions about “risk level,” but real financial advisers recognize this step can be the difference between building a long-term relationship or creating a short-term disaster.
One of the best comparisons I've found is to think about it like designing a house. Imagine you go to an architect, outline everything you want and hand over a bunch of money. You expect a house plan that matches your vision. But when you go back to look at the architect's plan, it looks nothing like what you said you wanted. I doubt you'd hand over any more money to continue, let alone build the house.
It turns out other service professionals, like real financial advisers, can struggle with failing to meet client expectations, too.
Russ Alan Prince looked at why people didn't implement the suggestions of estate attorneys they worked with. Estate plans tend to come with a pretty significant price tag. It seemed silly for clients to ignore the advice. But when Mr. Prince asked why, the overwhelming response was that the suggestions didn't reflect what the client wanted. I'm not sure he checked, but I'm betting those clients never returned to the same estate attorneys again.
You don't want that to be you, and it won't need to be if you recognize the role of time and how to discuss it with clients.
It starts with drawing out information about client goals and getting those down on paper. Then, put the goals in short-, medium- and long-term buckets. These details create a touchstone that you and your clients can refer to at moments when people are thinking about doing something that conflicts with them.
By getting really good at diagnosing before prescribing, we can help clients stay focused on goal-based planning that fits their individual time frame.
For instance, a client may call you all excited about news the Yale endowment did really well last quarter. Shouldn't your client switch to investing like Yale?
Your answer won't be some version of, “No, I think that's a bad idea.” Instead, you'll be able to say, “Yale's time frame is different than yours. When we last spoke, you were talking about plans to take your big trip in five years and retire in 10 years. An endowment like Yale thinks is terms of multiple decades. Your goals cover a much smaller window of time.”
Carl Richards is a certified financial planner and the author of the weekly "Sketch Guy" column at The New York Times. He published his second book, "The One-Page Financial Plan: A Simple Way to Be Smart About Your Money" (Portfolio), last year. You can email Carl here, and learn more about him and his work at BehaviorGap.com.