It could be the very reason why so few Financial Planners (including CFP's and Chartered Financial Planners) actually DO (proper) financial planning on a day to day basis. Instead they might spend most of their time implementing, changing, reviewing or otherwise discussing products or investments (which has nothing to do with proper financial planning, but are things you do AFTER you've done financial planning.)
I think I’ve found out why.
They make 'Financial Planning' an option. It’s an easy mistake to make. And there's one well-meaning but really daft question that is to blame for this. It goes something like this:
“How can I help you today?”
In my view this is the most foolish question an Adviser can ask. And it is costing Advisers potentially hundreds of thousands each year in lost revenue.
Here’s why it's a daft question:
It's too open a question - and leads Adviser's straight into the 'Transaction Trap'. It's an easy trap to fall into.
Whether we like it or not, most people regard Financial Planners/Advisers as people who transact/implement/advise on PRODUCTS or investments. And for good reason, it has been the Financial Services Industry’s focus, and therefore the Adviser’s main focus for far too long!
So, it’s not really surprising then, that when a new prospective client comes to you, from whatever source, (e.g. referred by an accountant, or from an existing client) the chances are they will have a query about a product, pension or investment, or what to do with some money, etc, etc.
One thing is for sure. They won’t be demanding ‘financial planning’! They don't understand it. (Few people do - and they won't - until they ‘experience’ it).
So, as soon as an Adviser asks “How Can I Help You Today?’ chances are they’re going to get involved in a product related discussion whether they like it or not.
The Client might say “Well, I have this query about my pension…”
Out of habit it might be only natural for the Adviser to ask "what sort of query?" and then get embroiled in a product related discussion, possibly for several minutes, or even longer! And I've noticed that the more technical an enquiry, and the more qualified the Adviser, the easier it is for the Adviser to get sucked into that type of ‘discussion’. After all, they’ll want to show off just how much they know, right?
This is a big mistake!
They might even make matters worse by adding a little 'fuel to the fire' by judging or commenting on their product query/issue etc by saying something like “I understand why you have a concern about your pension with XYZ, I’d be concerned if my pension was with them!”
See what’s happened? They’ve started off in the wrong direction altogether! And, from a client's perspective, they are typical 'Financial Advisers'. They haven't differentiated themselves.
But now... the good Advisers - who really do want to do the job properly by doing proper ‘Financial Planning’ (See my post ‘Financial Planner or Financial Adviser?’) - then try and introduce the concept of Financial Planning. In other words they try to 'sell' a Financial Plan. They may say something along the lines of: “Well, although we do advise on XYZ (eg Pensions) what we’d really like to do for you is a ‘Comprehensive Financial Plan’.”
Besides asking "What's one of them then?", the client will most probably say: “How much is that going to cost?”
The Adviser might then say £3,000, £2,000, £750 or £250 (everyone will pay a fee if you make it low enough!)
After you've pitched your worthwhile fee, out of respect for you - and to be kind - the client may then say something like: “Well, that service does sound very good, and I really would like it. But perhaps next year. This year, can you just sort out my pension?” (Or my ISA, etc, etc)
Has that ever happened to you?
So there you have it. The reason why most well meaning Advisers/Planners get stuck in a TRANSACTIONAL relationship from the off. And because of this, they lose - big time. In fact, from my own experience, I estimate that good, well qualified, Financial Advisers/Planners are earning a QUARTER of what they could be earning because of the 'Transaction Trap' - caused by this dumb question.
So, rather than creating a highly profitable, secure, more trusting, more beneficial long term financial planning relationship - one where they really give clients the answers THEY want most - and where the Adviser then gets ALL their clients money, does a lot more business and earns a lot bigger fees - they lose.
And sadly, once you’ve gotten off on this foot it is very hard to get back to a financial planning relationship. Every year the conversation will be about reviewing/switching/changing the product, but NOT financial planning. Sooner or later, clients won't value this, and will stop paying your fees. Particularly as they become more and more aware of what they are paying in fees and charges.
The good news: it's really easy to fix this problem. Go here: free video.
PROPER FINANCIAL PLANNING IS THE GLUE THAT MAKES THE MONEY STICK!
So the simple answer is, don’t ask that daft question in the first place!
Don’t worry, you’ll still implement lots of products and do plenty of ‘transactions’ (assuming they need doing). (Third hat) But those transactions will probably be 5, 10 or 20 times larger – and for the right reasons – because you delivered PROFITABLE client focused (i.e. not product focused) financial planning.