In this issue, Paul Armson follows up on his article in the July 2009 issue of The Professional about the ‘Art of Fact Finding’. Here he shares a few of the pitfalls to avoid as we move towards building a sustainable financial planning model in Ireland.
In the UK, the terms ‘Financial Planner’ and ‘Financial Planning’ are fast becoming the most abused words in the English language!
Even worse, all over the UK many Advisers now call themselves ‘Financial Planners’ because, quite simply, they are too embarrassed to call themselves ‘Financial Advisers’.
The trouble is, they DON’T actually DO financial planning. If I sound like I’m being a little harsh then please excuse me. But, if the same problem arises over here in Ireland, then all the good work you are now doing in trying to move the ‘industry’ towards a financial planning ‘profession’ will be wasted. We really do have only one chance to make a Profession. We can't afford to mess up.
The question is: What is Financial Planning?
In my personal view, financial planning has nothing to do with the sale or implementation of financial products or investments. Those are just things you do AFTER you’ve done financial planning – they are simply ‘tools in bag’ if you will, used to get the job done – IF, and ONLY IF, those ‘tools’ are required.
True financial planning is a service that does not revolve around the sale of, or the implementation of, a financial product or investment. It is a service that revolves around the client – not their money. It is a worthwhile and valuable service that deserves to be paid for whether a financial product is required or not.
More important, done right, it is an ongoing, repeatable client focused service that justifies an ongoing, recurring fee. This can then build a secure and recurring revenue stream which then creates substantially increased business values.
The ‘Three Hats’ Concept
I believe that any Financial Adviser worth their salt wears, what I call, ‘three hats’ – in other words there are THREE distinct parts of the job that are necessary to advise clients fully. I believe that every ‘good’ adviser does these three jobs, to a more or lesser degree. The big question is do they realise it?
More importantly, do they get paid for EACH of these three jobs?
Since the early 90′s I’ve been describing my FIRST ‘hat’ or job, as that of a ‘Life planner’, it’s THE most important job.
‘Life planning’ is the job of really finding out about your client; it’s about really getting to know their hopes and dreams; their goals; their aspirations; their fears and concerns. It’s the job of finding out what makes them tick. It’s about finding out what they are trying to achieve.
It’s also the job of finding out not only all the ‘soft’ facts, but all the ‘hard’ facts, and all the information you need to know to move on to the next stage.
In reality, ‘life planning’ it’s nothing more than a GREAT client focused fact find, (see article in the July 2009 issue of The Professional) that focuses on your client MORE than it does their money. Do this right and they’ll trust you with ALL their money.
TIP! Don’t go trying to ‘sell’ Life Planning though! That’s an easy way to go broke! It is just part of what you do (or should be doing) to properly advise clients. Life Planning is not about psycho analysing clients, bringing your client to tears, or hugging trees! It’s just really getting to know about your clients and what THEY want.
K.I.S.S Principle. Keep It Shallow Stupid!
I like to keep it ‘shallow’! At least initially. Go too deep with your questioning and there’s the risk you’ll scare clients off. Focus on their LIFESTYLE. It’s tangible. They can see it, smell it, taste it, touch it! It’s what they’ve worked hard to achieve. And it’s what they want to keep.
That’s why Lifestyle Financial Planning makes sense!
The SECOND hat… that’s the hat (role) of a Financial Planner!
This is where you identify all the resources currently available to the client, the resources becoming available to the client in the short term, and the longer term. It’s also often the task of identifying the resources (i.e. money) that might NEED to become available in order to achieve their objectives. This obviously is the process of identifying the clients current and future net worth (assets and liabilities), the current and future inflows (i.e. incomes) and more important the clients expenditure requirements, now and in the future.
As mentioned above, this revolves primarily around one thing: LIFESTYLE!
Big lifestyle = big expenditure = big problem.
Little lifestyle = little expenditure = little problem.
In other words EXACTLY what sort of lifestyle does the client have now, and what do they want in the future. A good financial plan should then be able to identify shortfalls and problems by pulling all this information together and making sense of it. This is where technology can come to the rescue, to help you crunch all the numbers. (More on this later). Without the right technology, well, quite frankly you can’t do financial planning.
Finally, after you have produced a financial plan, and more importantly, helped the client understand what this means by demonstrating what their future looks like, then, and only then should you be in a position to put on your third and least important hat!
That is the hat of a Financial Adviser – whether that be an IFA / independent adviser / broker or a direct sales person – this is the stage when you recommend the RIGHT PRODUCT(S) that may be required to achieve the objectives of the financial plan – in other words the product or investment (and level of ‘premium’) most suited to satisfy your clients REAL needs.
As you can see, this three stage process is the EXACT OPPOSITE to traditional financial advice. Traditional financial advice, more often than not, leads with the product, and the need, or motivation to ‘sell’ a product. That is why the ‘old model’ driven by commission is broken, and not trusted.
Real financial planning puts the client first. The product sale or implementation becomes less important. The client experiences a more meaningful relationship with you the adviser; this builds trust, and when you build trust, the client will do more business with you, often willingly allowing you to ‘manage’ ALL their money, this helps you achieve very high levels of business gaining substantial assets under influence (AUI) or assets under management (AUM). This is what you need to move towards being a fee based financial planner. This is what will secure your future!
Financial Planners to the rescue!
Right now, in Ireland (as in the UK) clients don’t want to be sold a financial product, they WANT clarity about what their financial futures looks like. In fact, they want and need this financial clarity now more than ever before. It’s the not knowing that causes the problem. And that’s why many clients right now have no idea where they really stand financially, or where they are heading. This is your opportunity of a lifetime. Financial Planners to the rescue!
The Financial Planners’ job is therefore to make sense of all the clients’ inflows, the outflows, the projected future values, and the various scenarios and outcomes that are available to the client. This is where the client comes to understand that your service is totally focused on them, and on helping them to achieve what they want most – which, from experience, is normally financial independence, financial security and peace of mind. This is the Financial Planners job.
In effect, the Financial Planners’ primary job is to ensure that clients can achieve their lifestyle objectives without ever running out of money. Clients will pay you well for this service, either directly through fees, or through commission offset.
HOW TECHNOLOGY CAN HELP…
There is no getting away from it though, to do financial planning you need to crunch the numbers! And that can take a lot of valuable time and effort messing around with spreadsheets.
But the good news is, there is now available in Ireland a bespoke piece of financial planning software that effectively does the job for you. More important it can be used WITH clients to demonstrate and prove that you actually DO financial planning (rather than just ‘say’ you do).
It can be used to powerfully demonstrate, graphically, what your clients’ financial future really looks like, and, how you can help them make things better through various courses of action. It literally proves that your service is focussed on your client. (If you are interested in finding out more email me.)
So, in summary, the future of REAL financial planning in Ireland, as it is in the UK, is very exciting – what is necessary though is to separate financial planning from products and investments – remember they are just tools in the bag!
And here is the good news! In many ways you are well ahead of the UK. Take this publication for example. It’s called ‘The Professional’ – and when I first saw it I noticed that there was one thing missing. It’s the one thing that demonstrates to me that, in many ways, you are ahead of the UK market. There are NO advertisements! There is nothing in this publication advertising financial products. What a relief!
Sadly, in the UK, financial publications, and, dare I say it, ‘professional bodies’ are indoctrinated by product advertisements and / or product provider sponsors. This causes well meaning Advisers, who purport to be ‘Financial Planners’ to still focus too much on ‘the product’ (i.e. the third hat). And that is why, in the UK, Consumers cannot distinguish between a Financial Planner, and a Financial Adviser/Product Salesman. If I can just get one thing across with this article, I urge you, not to make the same mistake in Ireland.
So, are you a Financial Planner, or just a Financial Adviser? If you spend most of your time thinking about, talking about and implementing products and investments, well, sorry, but you might need to rethink.
Here’s the key: you need to create a process that is a client focussed financial planning process – not a ‘selling a financial product’ process.
And just one more thing, Financial Planning’ is NOT about how you are paid, it’s about what you DO. Don’t worry about the ‘sale’ or ‘writing business’ or ‘charging fees’. I promise you, when you do REAL financial planning, aided by the right tools and the right mindset, you’ll build closer, more trusting, more meaningful client relationships and you’ll do more business than ever before – without even trying!
Paul Armson is the author of 'The Financial Adviser's Survival Guide - How to Succeed and Prosper in a Fee Only World' (you can download as an eBook here). He is the Founder of Inspiring Advisers Online, an online community of Lifestyle Financial Planners and inclusive Coaching Programme designed to help Advisers transition to a highly profitable fee based Lifestyle Financial Planning model QUICKLY and without re-inventing the wheel.