What is the most important issue facing the financial planning profession today? What is the primary difference between highly successful and less successful advisors who may be just as capable?
Interestingly, both questions have the same answer. The most important issue facing the planning profession today, and the most important thing that determines how successful your business life and practice will be, is your ability to easily and confidently communicate the value of the services you offer.
Now here’s the punchline: when I travel and speak around the country, at chapter meetings and national conferences, I find that very few advisors understand how important their work really is to the lives of their clients. There is, in my humble opinion, an enormous gap between the value that financial planners deliver and their perception of the value they deliver.
On some level, this is unsurprising. I suspect that many of you feel blessed to be in a profession that helps people and offers great psychic rewards – and significant financial rewards. Advisors have actually told me that they feel like, because the work they do is so rewarding, it cannot possibly be valuable. (Yes, this is illogical, but – trust me – somewhere in the back of your mind, you’re making the same argument to yourself.) More generally, I think those who perform a service always have trouble evaluating its value in the client’s life. It feels like your daily activities are normal work, and so you expect the results of what you do to feel normal, too.
So, with this article, I’d like to help you think through the value of what you do for the people you take on as clients. Let’s start with the ordinary conveniences that you offer your clients; we’ll progress to the services that can transform their sense of well-being and fulfillment – forever.
1) You help your clients to track – and streamline – their financial affairs.
I think it is hard for a planner to realize what it’s like to be a naturally disorganized or financially naive person, so let me draw you a picture. The typical person I talk with outside the planning profession had a will drawn up … some time ago. He’s not sure exactly when. He has a mild curiosity, now that you bring it up, to remember what it says, but who knows where it is these days? There’s an insurance policy in a drawer somewhere, and it may be term or it may be a cash value contract; all he knows for sure is he writes a check to the insurance company every year, and, if you give him a few minutes, he might be able to find last year’s check register and tell you how much he paid. The auto insurance policy he happens to own is way more expensive than the lowest rate he could find in the market, and his homeowner’s policy hasn’t been updated since the Clinton Administration. Refinance? He’s either paying 8% or 6%. Or maybe 7%. What are the rates like today? But at least the portfolio is diversified. He owns six different small cap value funds, all managed (he tells you proudly) by different fund companies.
You might be tempted to laugh.
But people who don’t do financial services for a living find all these things incredibly complicated and confusing, and they prefer to focus their attention on work, home, family – the things they feel are really important. They know they’re leaving money on the table. What they don’t know is what to do about it.
When you sit these clients down, put everything in one place, and show them how it all works, you are taking away the anxiety that comes with normal disorganization and replacing it with a sense of peace. At last, you help them feel, the paperwork is attended to and decisions are being made with a degree of competence.
Plus, you can probably save them money on some of the things they were overpaying for.
All of this is incredibly valuable to their confidence and their sense of well-being.
And it is the least of what you offer your clients.
2) You help your clients create an organized, diversified portfolio, and you stand between them and the dysfunctional, emotional decisions that everybody makes with their own investments.
My favorite presenter at financial planning conferences is Roger Gibson. One reason I like him is that he wows audiences even though he has a sincerely nerdy personality, with none of the flash of a born public speaker. Another is that he demonstrates magic. He shows planning audiences that if you knew in advance how to pick the one asset class that would offer the highest rate of return over the next 10 years, a diversified portfolio that blends three lesser-returning asset classes would still generate more terminal wealth. This, of course, is the magic of a smooth investing; any portfolio that experiences big negative years will produce less terminal wealth than a mix of lower-performing investments that takes a steadier course to its destination.
Advisors can get their clients a higher rate of return than they would get on their own, simply by putting their portfolio allocation somewhere near the efficient frontier. Chances are, over ten years, this benefit alone will more than pay your planning fees.
But there’s much, much more that relates to today's market environment. Left to their own devices, many – perhaps most – clients will panic and sell at or near the bottom of a market storm (like in 2000, or in 2008, or last Fall), and then return, years later, when they get caught up in the buyer’s frenzy at or near the top. Terry Odean, a professor at Berkeley, has taken a lot of customer data from two big discount brokerage houses and found that those people who traded most frequently experienced the lowest returns.
There have been numerous studies, by the Dalbar organization, Morningstar and others, that show investors experience returns as much as 6 percentage points a year lower than the markets or the mutual fund industry deliver – thanks to their trading habits. One credible study estimated that more than 70% of all day traders lost their entire portfolios in the late 1990s – during the biggest bull market in American history! Back then, markets were delivering more than 20% a year.
The point here is that you don’t have to time the market or find above-market-return investments to add tremendous value to your clients’ financial lives. Today, even if your clients fully participated in the downturn, if they will also participate in the recovery, then they will greatly outperform the average investor in the marketplace.
The difference between the returns your clients get and what the average investor gets, measured in terminal wealth dollars, is most likely many, many times what you charge.
And even that is only an incidental part of the value that you offer.
3) You help your clients get into the habit of saving (and investing) a portion of their income.
You may know the statistics about the savings rate in America. (the 2004-2008 numbers hovered around 0% of income, and after a brief spike, we are heading right back into the same territory.) But the keepers of these statistics don’t tell you that they probably overstate the actual savings rate, because they don’t include things like increasing credit card balances or home equity loans – so that when people ran up even more debt while putting some away in a saving account, it registered as an increase in their savings.
The well-kept secret about the investment markets – which you know, but which you probably think is too obvious to communicate effectively to clients – is that a person’s savings habits have much more effect on his or her wealth at retirement than the rate of return on his or her portfolio. People who save 10% of their income will have far more terminal wealth after 30 years than people who save substantially less but get an extraordinary rate of return.
The problem for most consumers is that there is no voice in their environment advising them to save for themselves a fair percentage of the income they earn. Instead, they are bombarded by powerful arguments to do the opposite: Buy this! Buy that!
When you become that voice advocating saving and help organize clients’ lives so that the money that goes into an investment account is treated as one more expense that has to be paid every month, you provide an incalculably valuable service. One advisor once told me the story of a schoolteacher who came to him early in her career and got in the habit of saving a percentage of her income every month. At age 60, she decided to retire with a portfolio in excess of $1.5 million, and her fellow teachers asked her where she had gotten the money. They were still working to pay their bills.
The difference between a lifetime of paying one’s self and one of spending whatever one makes is, over time, the difference between the cheerfully desperate-looking greeter at a Wal Mart store and the person who retires on his or her terms, living a life of travel and leisure.
Can you put a price on that? Certainly it would be far greater than whatever fees you charge.
And we are still far from the most valuable service you provide.
4) You help your clients identify what is important in their lives, and prioritize their goals.
There are no statistics on this, but I have yet to find a person who is not working with a financial advisor who has taken the time to identify what he or she really wants out of life.
This is tragic. The vast majority of people in our advanced, prosperous society have not taken the time to figure out what they really want out of the all-too-brief time they will spend in this world. And because they don’t know their goals, you know they will never reach them. They are, in a very real sense, doomed unless acted upon by a powerful outside force.
If you ask questions in your initial interview that help your clients recognize this deficiency in their lives, and you lead them to identify their most personal goals and desires, then you have given them a priceless gift. It is worth more than all the money there is, which (I can only assume) is less than you charge.
5) You help your clients turn seemingly impossible goals into a routine that can achieve them.
I am constantly amazed that financial planners have the most powerful tool in the world in their hands, and they are so familiar with it that they don’t realize how valuable it is. After years of running retirement planning spreadsheets, you have mastered one of the truly magical lessons of life: that any enormous goal can be broken down into manageable increments and achieved through routine and persistence. If you save X amount of dollars every month in a portfolio that gets something close to what the market offers, and you will retire with a sum of money that seems impossible to you now.
I have only seen the power of this expressed once, in an old episode of the class TV Western series “Bonanza.” The series focused on the Ponderosa ranch – which, as near as the viewer could tell before the map burned up, must have encompassed most of the state of Nevada. There were four characters, and this particular scene featured two of them: Ben “Pa” Cartwright, and his burly, muscular, not-too-bright son “Hoss.” Pa was going out of town for a few weeks, Hoss would be left in charge of this enormous ranch. and Hoss was nervous that he wouldn’t be able to manage it all. So his father decided to teach him an important lesson.
Pa picked up a large bundle of sticks and put them into Hoss’s muscular hands. “Hoss,” he said, “I want you to break these sticks.” Hoss took the bundle of sticks in his arms, and his muscles bulged, and he flexed and strained, and you had the feeling that if anybody on the planet could break this bundle of sticks, it was this cowboy. But no. Finally, Hoss gave up, and gave his father an unhappy look of defeat.
“Pa,” he said, dropping the sticks at his father’s feet, “I just can’t do it.”
Ben Cartwright was unfazed by this failure. He picked up one of the sticks from the ground and handed it to his son.
“This time,” he said, “break them one at a time.”
This is the powerful magic that financial planners have learned, and that the rest of the world still doesn’t consistently grasp. You have the ability to identify client goals, put the financial numbers to them, and then break the overwhelming whole down into those individual sticks. Put another way: You make it more likely that your clients will achieve their most meaningful and important goals – in most cases, far more likely.
What’s the value of this? This, too, is probably more than anyone could possibly charge. And, no, sorry – there’s still the biggest service of all.
6) You help people bring the focus of their planning from retirement to the present.
Truthfully, I don’t know if you offer this service, but if you don’t, you will before long. Ten years ago, there was little understanding of the downside of retirement; that it means more than just leisure, that it often carries with it a feeling of lost usefulness – of lost stature and self-esteem – for the life-long worker. As Mitch Anthony has memorably put it: When you retire and golf is your most meaningful activity, then golf suddenly becomes your work.
Today, many advisors recognize that retirement is a huge, dangerous transition, and that all too many people will unknowingly retire to lives of emptiness and meaninglessness. And so they are no longer doing retirement planning. Instead, they are offering career counseling, helping their clients transition from a job they dislike to meaningful work that they can enjoy as if it were play. I think Jim Johnson, who practices in Sacramento, put it best. “We help people leave high-paying crappy jobs,” he said, “for crappy-paying great jobs.” And of course he works out the financial implications of it, so that the change in lifestyle is not traumatic.
Helping people move from work they dislike to work that is fulfilling and empowering is enormously valuable, and the bonus is that, while they do what they enjoy, they can also avoid the meaninglessness and emptiness of a retirement that puts them on the sidelines. They can cut back and still remain relevant.
Can you put a value on this? It’s incalculable. But let’s agree that this, too, is probably almost certainly greater than your current fees would reflect.
… And you still do so much more.
Of course, this is not a comprehensive list. When clients come to you, within a year, perhaps sooner, they begin to enjoy a certain peace of mind about their financial affairs. They are educated about esoteric financial issues – life skills that are never taught in our dysfunctional society. They feel like they have an ally who is on their side in a world that would take their money and steal their time for everybody else’s agenda. They have somebody who will ensure that their spouse and their heirs are taken care of when they’re gone.
And, notably, the list I’ve given doesn’t include specialized services like charitable planning, divorce counseling, creating special needs trusts for a disabled child, or the value of having been nagged into buying the disability insurance and long-term care coverage that is now, suddenly, an important source of income. It doesn’t include the comfortable knowledge that a client can call you for advice on virtually any financial or economic subject, and you’ll give her an answer that is not tainted by a sales agenda.
The point, however, is that the services you offer have enormous value, and many advisors I talk with are shy about the fees they charge and almost tongue-tied when it comes to describing the value they offer their clients. If more people understood this list of services, and the benefits that each of them offer for their personal and financial lives, I suspect that every person in the world would be clamoring at the doors of the nearest independent financial planner.
But today, they are not. Why not? Because many of you are not delivering that message effectively. Or you lack total confidence in what you’re offering.
Let’s say it out loud, with confidence: Nobody in the world makes as much of a difference in peoples’ lives as a well-educated, caring, ethical financial planner!
After watching the profession for the better part of 23 years, I can say with total sincerity that nobody’s work is as important or valuable as yours. If you are having trouble charging enough to live a prosperous life, then you don’t really understand the full value that you provide to your clients. If you are having trouble convincing people to work with you, or if you are not drawing new clients through your door, then you are depriving people of a chance to master all the challenges and opportunities that life has to offer.
Master these services, recognize and communicate their value, and you will instantly move into the elite ranks of the planning profession – and perhaps learn to charge at least a fraction of what you’re worth.
Bob Veres' Inside Information service is the best practice management, marketing, client service resource for financial services professionals. To invest in your practice and professional career, the annual cost is $299 a year with discount code 55DF: www.bobveres.com .
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