As advisers grapple with an uncertain regulatory environment, increased competition and fee compression, it's imperative for them to focus on strengthening client relationships. One of the best ways to do this is by creating and implementing a culture of quality
financial planning.
While the final outcome of the Department of Labor's fiduciary standard rule is under review, advisers still need to plan that acting in the client's best interest will be required. Quality
financial planning allows advisers to truly act in the best interest of their clients, as it takes into account the full picture of the client's needs and goals. That said, even if the fiduciary rule does not come to pass, quality financial plans will become a point of differentiation that will allow advisers to build their business by adding increased value.
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How should we define a quality financial plan? Our research of more than 1,600 financial professionals, data from 1 million plans, and insights from 39 industry thought leaders from the book "Exploring Advice," highlighted several best practices for creating quality financial plans that help your clients and your business:
1. Don't believe everything you think.
Thirty-seven percent of advisers we surveyed argue that clients won't engage in in-depth financial planning. Thirty-two percent say that they don't have adequate time with clients to discuss their plan. However, in consumer testing at PIEtech, we found that most investors can build a financial plan in 60 to 90 minutes with the right tools and guidance. That suggests that advisers can build a quality plan in even less time.
2. Ask the right questions, and then listen.
Ninety-nine percent of those surveyed agreed that it's necessary to explore a client's expectations of retirement when delivering a quality financial plan. However, a standard discovery questionnaire typically yields answers to only the most commonly cited goals:
• Desired retirement age (100%)
• Basic needs like food, clothing, shelter (98%)
• Health care costs in retirement (98%)
What about less obvious goals? Do clients want to travel to exotic locations, stay near home or visit family and friends? Will they support themselves, or do they need to make arrangements for a partner, children or grandchildren? By incorporating a client's vision for their future, the adviser can create a more complete and successful plan. It also builds
trust that will strengthen your relationship over the long term.
3. Don't be afraid to give the client the bad news.
You need to advise clients on which goals are achievable under certain financial scenarios and which are not. For example, a client may want to travel overseas each year. With enough assets and a limited set of liabilities, that may be possible. However, an adviser needs to be honest with a client of more limited financial means — perhaps suggest an overseas trip once every few years or several annual domestic trips instead. To be successful, help the client set realistic goals based on his or her financial situation (income, job stability, assets, liabilities, risk tolerance) and then devise a financial plan to fit them.
4. Don't rush big changes.
Financial planning can be overwhelming to some and may be more effective if approached in phases. Most clients haven't thought that far into the future or aren't comfortable doing so. A financial planning process that is incremental, and implemented in more digestible pieces can be less intimidating. Work with clients to determine what needs to be tackled now, versus what can be implemented in the near to medium-term.
5. Make the plan dynamic.
The days of static financial plans are over. The world is complicated, and so are people's lives. Circumstances and priorities change. Plans need to be flexible and advisers need to check-in with clients regularly to see if they are still on track to meet their goals based on their current situation. A quality financial plan should be updated as circumstances change.
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We, as an industry, have an enormous opportunity to improve the quality of the financial advice we are providing to our clients, while at the same time building our businesses. To do this, we need to focus on engaging clients and prospects as part owners in the process. The firms and advisers that are able to embrace the shift from a sales culture to one comprised of goals-based planning will thrive, and their clients will be better prepared for retirement.
Kevin Knull is the president of PIEtech, the creator of financial planning software MoneyGuidePro.
