Are you really doing lifestyle financial planning?

There has been quite a significant movement over the last few years of financial brokers or advisers repositioning (or simply renaming) themselves as financial planners. This makes a huge amount of sense, because of the value that lifestyle financial planning brings to people’s lives. But it only makes sense when lifestyle financial planning is what is actually being delivered.

 

Why is Lifestyle Financial Planning so important for you, the planner?

There are two answers to this question. The first and most important reason is because of the impact it has on the lives of clients. It’s not about investing money, it’s about helping clients to achieve their lifetime goals and dreams, and to lead more fulfilled lives through making behavioural changes. Good financial planning simply improves the lives of clients.

The second is a defensive reason. I still haven’t heard a reasonable defence of how traditional financial advisers will be able to defend themselves if or when a proposition similar to Vanguard’s lands on our shores. As it will one day. For those of you who are unaware, Vanguard rolled out a new proposition in the UK this year, offering their passive funds directly to investors with an administration charge of 0.15% of assets. And the charge is capped at asset levels of £250,000. On top of this, they are hiring 3,000 CFPs who will give advice over the phone to clients for 0.30%. If all you do is help clients make investment choices, how will you compete with that?

 

What is lifestyle financial planning?

It consists of four main phases, and it’s not lifestyle financial planning if any of these phases are skipped over. The four phases are

1. Discovery

This is the phase that gets skipped over the most, which is a shame as this is the most important of all of the stages. This is the phase where the planner finds out the lifetime goals and ambitions of their client, where the client can visualise the outcomes in their own terms – the life that they will lead, the possessions that they will own, the impact they will be able to have on the lives of others, what they will do and achieve in their lives.

Until you know the answer to these questions, what are you planning for? Just building a pot of money with no idea of what it will allow your client to do?

This phase is carried out by careful and well thought out questioning by the planner. And then listening intensely. It is not “airy fairy”, instead it is the most important conversation that you will have with your client.

2. Planning

This is where the planner then uses his/her expertise to develop the roadmap for the client to get from where they are today, to achieving the life they visualised in the discovery phase. This is an area of comfort for planners, where you can utilise all of your experience and technical skills to develop a plan for your clients. As a result though of the comfort at this stage, some planners rush to it without properly completing the discovery phase – when that happens, you are no longer carrying out lifestyle financial planning.

Central also to this phase is the use of future cashflow planning. Again without it, it’s not lifestyle financial planning. Using this process you can demonstrate to clients if they are on track to lead the life they visualised and if not, what they need to do to get on track. You can show them the impact of unforeseen events and how to plan for them, the impact of changing goals and of course the actions they need to carry out, or products they need to put in place to achieve the plan.

3. Implementation

The most straightforward of all of the phases. This is where the planner assists the clients in carrying out the required activities (e.g. budgeting, bank accounts, wills, power of attorney) or putting the required financial products in place that will play a role in achieving the goals of the plan.

4. The ongoing journey

This is again a really important stage that sometimes doesn’t get enough attention. Regular contact and scheduled meetings sit at the heart of lifestyle financial planning. The ongoing interactions turn the plan into a real journey towards the client achieving their lifetime ambitions. They are the opportunity to review and restate / change goals, review the progress and performance of the actions and products that were implemented and keep the client on track in terms of their behaviours with their money and their investments.

Without these meetings happening as scheduled, it is akin to pushing a boat away from the harbour wall to sail the stormy seas alone… You need to be beside your client at every turn, helping them to navigate their way towards their dreams.

 

If you are carrying out these four phases of work consistently and expertly with your clients, you can change their lives and help them achieve their desired goals and dreams.

How can you secure your ongoing future income stream

Many of the advisers that I talk to regularly speak of the dual challenges of earning enough revenue today from new business to pay the bills (while hopefully having a bit left over), and also moving their business model towards building up a growing, recurring revenue stream. Most are somewhere along the journey of shifting to a model where clients are paying for the advice they receive, rather than the products sold. So what are the key factors to consider in building your income stream?


The products sold still play a role for most advisers

Product sales still play a role for many advisers. First of all, when it comes to protection products, the providers have helped advisers in this regard by introducing commission models in recent years that offer attractive spread commission options without the dreaded commission claw back in the event of policy lapses. This allows advisers to build up their ongoing revenue stream. Once the client continues to require (and can afford) the cover, and the adviser ensures that the cover in place continues to be the best available, the adviser stands every chance of this revenue continuing.

The situation in relation to pensions and investment is a bit more complex. Most advisers have moved away from large upfront commission payments on both regular and single premium business, towards lower upfront payments (by commission or fee) and a share of the ongoing annual management charge (AMC) by a trail commission.

While building up revenue through trail is challenging in the early years while asset amounts are lower, this basis is obviously more attractive in the long run as the adviser’s funds under management grow. Trail also removes the dependence on future premiums for future remuneration. Trail is also easy to explain to a client.

Of course many of you also charge fees for your advice, so fees and commission make up your ongoing income. But how do you justify this ongoing income?

 

The brightest future is in lifetime financial planning

The future is in financial planning, because this is where you can add the most value. Helping your client to understand their lifestyle objectives and to set financial goals, examining their current situation, and then devising and implementing a plan to close that gap. And then by working with that client year in and year out towards the achievement of their goals, you can build and easily justify your ongoing income.


You need a clear ongoing advice proposition

To show your ongoing value to clients, you need to have a clear ongoing value proposition for your clients. Ongoing work needs to be a core part of your proposition, not a “by the way” 10-second conversation at the end of the initial product implementation. Clients do not want to feel “sold to”. This is exactly how they will feel if you don’t have a strong ongoing advice proposition to offer them. Delivering this is a natural move for those advisers who are shifting their focus from a product sale approach to an advice based offering.

Apart from obviously reviewing a client’s financial plan and product portfolio to ensure they are still on track to achieve their objectives, a structured and well thought out review approach offers you a great opportunity to remind your clients where you’ve added value to them over the year. This is where you can remind them of the growth they’ve achieved in their investment portfolio that you put together for them, the tax they saved as a result of the retirement plan you designed for them, the money they saved by you restructuring their protection portfolio and health insurance etc. Indeed one of the great benefits for those advisers who provide future cash flow modelling for their clients is it creates a natural and very valuable engagement with the client every year.


The benefits for you are huge

You as an adviser also benefit, as a structured and well thought out review will surface any cross-selling opportunities that may exist. However the critical benefit to you is the strengthening of your relationship with your client, increasing your chances of retaining the client as their assets under management, and in turn your trail commission, increase. Surely this is a better approach than just hoping the client won’t be tempted away by another adviser who simply undercuts your trail commission amount?

And of course one of the main aims of many advisers is to build up value in your business. This is best achieved by being able to demonstrate a strong, stable revenue stream. Now is the time to develop your ongoing advice proposition to help you build up this valuable revenue stream.

What do you believe are the critical factors to help you build up your ongoing revenue stream? All your comments are very welcome below.

6 Years On..

StepChange is just coming up to its 6th birthday. It’s a business that was born in the teeth of the recession, but we’ve also seen the great growth years of recent times too. We’ve been really fortunate to spend this time almost exclusively among financial advisers and other players in the life, pensions and investment community. So what’s changed in the last six years?

 

The market is really evolving now

Six years ago, the term financial planner didn’t exist. Then it became a fashionable title for people to use. But today it perfectly describes what so many within the advice community do every day. So many firms have actively shifted their business model from one centred on product sales, to one where the financial plan developed by the planner sits at the core of the client proposition. And this has resulted in a whole new breed of advisers; those who are adding significant value to their clients and are now confidently in control of their business, not dependant on product sales and not exposed to the whims of the market and the changes in product strategies by providers.

Other advisers are still operating in a more traditional way, their business model based upon selling products. I worry that they face a difficult future with legislation and regulations making their lives more difficult and commission levels under pressure. They also face the emergence of low cost robo-advisers squeezing their margins, and it becoming ever more difficult to demonstrate real value to clients and to justify their income.

 

Technology is playing a key role

A lot of the potential threats for advisers lie in technology… but so do the opportunities. Robo-advisers pose a real threat in the next few years, offering advice solutions and low cost funds to consumers. Just see what Vanguard are doing in other markets – offering rock bottom fund fees, admin fees of 0.15% and CFP level financial advice for 0.30%. How can the traditional adviser compete with that?

But the opportunity also lies in technology. I was chatting to a financial planner recently about his client proposition and he said to me, “You can chop off my arm but don’t take Voyant away!” Now I’m not sure how important his arm is in the equation, but his message was clear. Future cashflow planning has been the key to helping him deliver a valued lifetime planning service to his clients and helps him build engaged relationships with clients that centre around the advice given, and not the products sold.

 

Many struggle to communicate the value added

You know somewhere in the back of your mind the value of what you do and know that you are delivering value to your clients. The problem for many of you is that your clients are just not seeing it. This often stems from not having the time to actually articulate what you do and the value that that you add, and as a result not actually documenting your proposition. As a result, there are lots of “chats” happening with prospective clients, instead of structured conversations with relevant marketing supports that set out your proposition in a compelling and engaging way.

 

Having a clear target market makes your life so easy

If you can easily identify and reach your target market, you can then focus your client value proposition, your sales activities, your marketing messages and indeed your whole support infrastructure around meeting the needs of these specific groups. Some only see the risks involved in this – narrow groups of people to target, missing broader opportunities etc. As a result, many advisers continue to try to appeal to everyone. And as a result, they don’t really connect with anyone. Yes, your target market must be big enough to sustain you. But if you then focus your efforts on them, you gain the opportunity of creating a real standout positioning for yourself.

 

Pricing is an ongoing challenge

The most common questions I’m asked are about charging; the calculation basis used by other advisers, how much they charge and how they actually get paid. As more and more financial advisers move from transaction based pricing to advice based pricing models, the big question that you are confronted with is how much to charge. This first of all comes back to your actual proposition, then how good you are at actually communicating it to your clients.

Even then, there is a certain amount of trial and error. Certainly I know from working with many advisers in this area (and from my own work), you need to initially work out sensible pricing levels and then keep them under review going forwards. For those advisers with well thought out propositions, experience suggests that they tend to initially set their pricing levels too low and end up reviewing them upwards as they gain more confidence in their pricing. And yes, in many or most cases, the fees are ultimately collected through the commission system.

 

 

So in summary, what’s my view six years later? For advisers who haven’t changed as the market evolves, I see a rocky road ahead. But for financial planners who are using technology, putting the time or getting the help (there’s a hint if ever you got one!) to developing a clear proposition for an identifiable market and communicating it effectively, their future is so much brighter than ever before.

Annual Meetings are your most important client interactions

Annual Review meetings are so important in the eyes of many clients. And if they are not, they should be. And it’s your job to convince clients of the importance of these meetings. This is particularly important as we see the news of Vanguard offering fund admin services in the UK for 0.15% and fund fees from as low as 0.07%! In the US, they offer financial advice (delivered by CFPs) for an additional 0.30%. So they will offer an “all-in” fee for advice and investment management for a little over 0.5%.

If this arrived on our shores, how would you compete and how would you justify your ongoing remuneration, on top of the investment management fees?

I shudder when I talk to some financial advisers and hear the haphazard approach that is taken to review meetings. They see it as a win when the client says they are happy not to meet! Could you compete with Vanguard on this basis?

The importance of developing an engaging Client Value Proposition has been picked up and acted upon by many Financial Brokers in the Irish market over the last year or so. A lot of time and effort has gone into identifying where clients are experiencing value, the advice process that is being used, the client services that are provided and indeed how all of this should be paid for by clients.

I can tell you as the client of a financial planner that I can’t at this stage really remember our initial interaction. But I remember clearly our last review meeting, and I’m also very clear about what we will discuss at our next meeting. And that’s the way it should be. The initial advice stage set me off on the right path; the review meetings keep me on it.

With some advisers, the focus is almost exclusively on attracting new clients, at the expense of minding the existing ones.  However having a brilliant review meeting is the means by which you’ll lock in those clients year after year, and as a result enjoy an ongoing income stream from the clients.

As a core part of your initial engagement with a new client, it makes sense to explain to them in detail what will happen every year into the future. It’s not enough for review meetings to be positioned as a “by the way” 10-second conversation at the end of the initial product implementation.

And what should a review meeting include? Well of course there is the standard (and necessary) tasks of reviewing a client’s portfolio, getting up to date values and potentially even writing a short review report. And of course you want to explore further protection needs based on changing circumstances etc.

However the real opportunity to demonstrate your value on an ongoing basis to clients rests outside of the traditional review meeting agenda. Why not take a little extra time and set out for your clients some financial benefits that you’ve delivered to them such as;

  • The growth in actual euros of their investment portfolio
  • The tax saved as a result of their pension plan and any other tax efficient policies in actual euros.
  • The actual money saved in euros as a result of a protection review you carried out previously.

Now your ongoing fee / trail commission starts to look very small! However there’s still a lot more you can do at these review meetings to demonstrate further value to you clients.

  • Help your clients with their household budgeting. This is an area that many clients continue to struggle with. By getting clients on the right path here and reviewing it with them, you can add enormous value to them.
  • Obviously if you carry out future cashflow planning using Voyant with your clients, this is an exceptionally valuable exercise every year. This can completely change the conversation, enable you to look at “what if” scenarios and approach the client’s financial affairs in a very engaging and collaborative way.
  • Talk to them about their broader financial needs where you don’t provide the solutions. You can add value by tapping them into your network of solicitors (for their will or enduring power of attorney), tax advisers (tax advice) or accountants. Now you’re the person centred right at the hub of their financial affairs.

Review meetings are also the opportunity to remind your clients of the work and interactions you’ve had with them throughout the year – the rebalancing of their portfolio that you carried out, the interim meetings you had, seminars you invited them to, the content you sent them etc. How can a client question your ongoing fees when they realise that you are actually providing value to them right throughout the year?

So place review meetings at the heart of your proposition. Make them memorable and ensure your clients come back to you year after year.

Is it possible to introduce or increase trail with existing clients?

How do you convince an existing client to agree to an increase in trail commission or an introduction of it on pension or investments business written some years ago? How will you answer the pushback that you’ve already been paid?

I’m working on the premise that the overall charge is going to increase. Of course if you can receive a trail within the existing price structure (with the product provider taking a lower annual management charge), this conversation will be a lot easier!

 

When does trail commission / a fee make sense?

These remuneration bases make a huge amount of sense when real, ongoing value is provided by you. To my mind it’s as simple as that! I would argue that if the product provider is providing all of the value – why should you be paid a fee or trail commission? But if you are providing expertise and ongoing value to your clients, year in and year out, ongoing charges make sense. I’ve worked with a number of advisers over the last year that have each said that clients don’t understand when a fee is not charged! When clients receive value, they expect to pay for it…

So you first of all need to add real value to your clients. You then need to ensure that you demonstrate this value in a way that clients clearly recognise the value that they are getting. And then you need to remind them of the value that you are adding, again and again.

 

Trail commission or fee?

If you’re clear enough about what you do and the value that you are adding, whether it’s a fee or trail is somewhat irrelevant, these simply become a method of payment. So really it shouldn’t matter…

But of course that’s not the real world. I know many advisers prefer trail as it is a bit more “below the radar” and you don’t have to ask for a cheque each year for your fee. Of course that is an easier conversation and is perfectly fine, where you are adding that ongoing value.

It constantly comes back to adding value, being really clear about your proposition and communicating what you bring to the table in an engaging fashion. We only have to look across the water at the UK, where trail commission as we know it is no longer allowed. The adviser can be paid on an ongoing basis from a policy, but the charge has to clearly link back to the value the adviser is delivering. This is very challenging for advice businesses that have simply collected trail commission without providing and demonstrating any real value. How will they justify their charge to their clients? On the other hand, it poses no threat to those advice businesses that are clearly demonstrating value to clients and having transparent conversations about how much and how they are being paid. Trail commission and fees are simply methods of collection to these firms…

 

What about existing clients though?

So that’s all well and good, you demonstrate the value that you will provide in order to justify trail commission to new clients. But how do you move existing clients onto a trail basis? How do you answer the client who challenges you that you’ve already been paid?

First of all, you need to provide clients with more than they have received from you to date, or at a minimum make them aware of all that you do for them. You need to set out clearly all of the services that you will provide to your clients that you hadn’t discussed at the outset – services such as;

  • ongoing portfolio analysis and restructuring
  • rebalancing
  • future cashflow planning – this has been the big innovation and the firm foundation of high value financial planning services
  • access to your network of specialists (tax advisers, solicitors etc.)
  • your market insights
  • the money you are making / saving them every year

At the start of your relationship, you identified the right product for your client and set up their policy, and were paid commission to do so. Now you are going to add real value to these clients through the range of advice-based services that you offer – and for this you must be paid, either via a trail commission or a fee.

You need to demonstrate that your proposition will add ongoing value year after year, for the lifetime of your relationship. You need to communicate this very clearly in an engaging way, and use case studies and testimonials to demonstrate the results that you achieve for your clients.

Doing these, you’re giving yourself every chance to gain the agreement of your client to pay you each year. Because the value they get will significantly exceed the ongoing charge that they will pay.

 

How do you convince your existing clients of the value that you add, and convince them to pay for this by a trail commission or fee?

Are you the linchpin of your client’s financial affairs?

Business owners and wealthy individuals today utilise the services of a whole range of professional service providers. Typically they have relationships with an accountant, a solicitor, a tax adviser and a financial planner. Pulling all the pieces together into a coherent strategy is a tricky business, and I suggest that (without doubt) the person best placed to complete this work is the financial planner.

The financial planner / financial adviser is the only person who tends to have oversight of everything that is going on in a client’s financial life, both within the client’s personal life and their professional life. The other professionals tend to work with clients on a more transactional basis, while the financial adviser’s relationship is different. He / she understands the long term financial objectives of the client, completes a very detailed factfind of the current circumstances and develops a roadmap to achieve those financial objectives.

I personally see my financial adviser as the hub of my financial affairs because he provides a broader range of value to me. Yes, he has of course developed my financial plan and ensured I have the right investments, retirement planning and protections in place – I’d expect no less! But he also guides me in relation to much broader financial-related issues.

Having been the beneficiary of such value-added services, I’ve identified below a few areas in which you can add value to your clients beyond the preparation of traditional financial plans and beyond the products that you recommend to your clients. Why bother with these? To build your client’s appreciation of the value that you can bring, and to make you the first port of call when changes in their circumstances arise. All of this helps you to build deeper client relationships and to bring more long term value to your clients.

 

Budgeting

I’m starting with an easy one that is often overlooked by financial advisers as not needed by clients because “everyone does it”. I disagree! People tend to do personal budgeting in a very unstructured fashion, usually in their heads. The opportunity is here for financial advisers to bring templates to their clients and help them structure their budgeting and to examine all of their day-to-day spending.

Apart from the value that the exercise brings, for married clients it is a great way of engaging the spouse too in the overall process, as their spending is equally important in the overall picture.

 

Future Cashflow Planning

I refer to this a lot, but only because I see it as such as a valuable service offered by some financial advisers. It may not be appropriate for every client, but it is hugely valuable to those who are suitable. The reason for this is simple. Traditional financial planning focuses on the starting point (as identified within the factfind – where you stand financially today) and the end event (death, investment maturity date, retirement date).

Future cashflow planning focuses on every year between now and your death, highlighting times of particular financial challenge to you in the future. Knowing the challenges that you will face gives you an opportunity to plan to overcome them.

 

Tax Advice for Individuals

Business owners and professionals will usually have an accountant. Most PAYE workers probably don’t. That doesn’t mean that they can’t benefit from tax advice; some want help in completing their tax returns, some want general tax advice. There’s a growing trend internationally of financial advisers moving into this space, in fact some financial advice firms are now employing accountants or tax advisers to provide this service and other tax advice to clients.

Now this approach is not going to be for everyone. At a minimum though, you should have a relationship with a good tax expert that you can plug your client into. The benefit for you is that it’s another demonstration of your value, as you are the catalyst for your client receiving the broader solutions needed.

Financial advisers also play a very valuable role in helping clients prepare for later in life and indeed end of life through retirement planning and life assurance solutions. However there are a number of other ways that you can help your clients prepare for these latter years, again helping to position you as the hub of their financial affairs. Some of these areas can also potentially bring you into contact with your client’s adult children, an important target market for many advisers.

 

Advice about Bank Accounts

Neither my bank manager nor my accountant spoke to me about having multiple signatories on my bank accounts, both personal and business accounts. But my financial adviser did. This is very practical advice, ensuring that in the event of my death or loss of capacity, that my wife would be able to access my money without jumping through all types of legal hoops…

 

Enduring Power of Attorney

This is a legal document that can be set up by a person during their life when in good mental health. It allows another specially appointed person to take actions on their behalf should they become incapacitated through illness in the future. This prevents assets being frozen and going under the control of the courts and allows the person acting on your behalf to make a range of personal care decisions on your behalf.

Anyone who has been through this situation, needing to access the assets of a relative who has lost their mental capacity (e.g. to pay for their care) will know the value of having an enduring power of attorney in place. It can be incredibly frustrating being unable to carry out simple actions on the person’s behalf without it.

At the same time, many people also draw up a “Living Will” which captures their preferences in relation to areas such as end of life care, their preferences in terms of resuscitation etc. when close to death.

A financial adviser won’t set this up. However they can be the catalyst for it happening through setting out the benefits of it to their clients and guiding them to put it in place. The adviser may even be able to refer them to a solicitor who will carry out this work with the client.

 

A Will

Again this is an area where financial advisers can guide their clients to ensure that they have a will in place to ensure their assets are distributed as they intend on their death. A simple process usually carried out with a solicitor.

 

These are some areas that financial advisers can help or guide their clients through. They add real value to your relationships; way beyond the product solutions you advise clients about and put you firmly at the hub of your client’s financial affairs.

Are there any other areas beyond products in which you advise your clients?

Image courtesy of Agnes Meilhac