When clients' investments are falling in value, it can make the conversation around justifying your fees that much more difficult.
We've been speaking to planners to understand their approach on adding value and keeping great client relationships, particularly through the more turbulent times. Here's what they had to say.
The long-term roadmap
The long-term plan is the foundation for financial planning. By continually coming back to the plan, it allows you to do your best to ensure your client always leaves meetings happy, including when markets fall.
The role of the financial planner is all about helping clients achieve their dreams and securing financial wellbeing on the way - it's why the long-term 'life roadmap’ plays such a crucial role.
With this in place, trade-offs and risks can be explored, understood and accepted. The roadmap provides clarity about their future, gives security and empowers clients to make decisions confidently and with clarity.
Creating a plan to essentially turn dreams into reality shifts the value offering. It helps clarify to the client what you do and don’t do, and keeps the client focused on the long-term context. This is the case even at times of poor returns.
Advertise future risks
Financial risk warnings are everywhere. But this also creates a problem - if these warnings are seen every day, the power of them starts to diminish.
Establishing a client’s attitude to risk and capacity for loss is standard practice. While vital for planning, there is a danger the process can end up focusing solely on the initial answer.
This is quickly forgotten, and won’t leave a lasting emotional impression on the client.
Asking a client how they would feel if the market dropped by 15 per cent doesn’t have much of an impact in the longer term. Conversations about risk ideally need to be in the context of the client's life plan, and be tangible and specific to them. For example:
"How would you feel if the markets dropped by 15 per cent and it meant you could no longer buy that holiday home in France?"
This is emotional - it will crush a dream. This may sound harsh, but the client will likely accept the goal might not be achievable. Consider repeating and visually demonstrating this in review meetings to reinforce the message.
This way, if a market shock becomes a reality, the client is prepared.
Reassurance and contingency planning
Market downturns will happen. Even when you prepare the client for this eventuality, as and when it happens it will bring worry and uncertainty.
If you have followed steps one and two, you can reassure the client you have planned together for this. They will have already assessed what they will do in turbulent and emotional times.
People make rash decisions under stress and pressure, which is why planners help clients create contingency plans when times are good.
Knowing what a contingency plan is and when to execute it defuses emotions. Equally, if clients know they have a contingency plan in place but don't need it right now, that allows them to carry on enjoying life.
It's worth explaining any contingency planning you have provided, such as: "What would have happened if we'd adopted the original aggressive risk profile? How would previous investment portfolios have been impacted?"
By demonstrating this contingency planning, you put both a monetary and an emotional value on your service.
True client understanding
Many people lock away their true dreams. They may never have discussed these in detail before, and sub-consciously they may be trying to protect themselves.
The role of a financial planner can be like a psychologist. You need to understand the root cause of certain behaviour, then put in place a plan to allow the client to move forward.
This process requires careful questioning in the right environment in order to build trust. It may require several meetings before clients open up.
Also, don’t forget the journey. An end goal achieved via an unenjoyable journey can be unfulfilling. There may be dreams along the way which centre on personal wellbeing and family which are worth pursuing.
There may be times when interim goals conflict with the longer-term ones. If this is the case, acknowledge this and discuss where there may be compromises.
Technology and planning
Technology once existed to support us operating more effectively. It didn't go as far as making or recommending decisions.
Yet the world is changing, and technology is doing more of what was historically our job. So the planner’s role will inevitably have to evolve in line with this.
Given the growing gap between the number of planners and those people requiring advice, this evolution is actually positive.
Planners will continue to focus on what computers struggle to do well. This means evaluating and explaining the options compiled with technology, and building relationships and showing empathy in the decision-making process.
We live in an on-demand world, where clients expect instant answers to their questions.
The focus needs to be on ensuring staff are good at using technology live with clients. Clients can then ask questions and get instant feedback, leading to more empowered decision-making. Where people are empowered, they are less likely to assign blame to others when things don't go as planned.
Good financial planners are constantly adding value. This might be by improving how investments are structured, through efficient withdrawal strategies or by outlining inheritance tax (IHT) plans.
Yet many planners do not demonstrate the value they are providing in monetary terms or by reference to the goals set.
This is a missed opportunity, as clients are left to judge performance solely on investment returns.
With compound annual growth, a simple piece of advice today can have a massive positive impact on a client’s investment and IHT position.
Often, this dwarfs the cost of advice. By demonstrating long-term value repeatedly, investment returns become secondary and fees become a non-issue.
For many clients, the feeling of loss is more impactful than the feeling of an equivalent gain.
Equally, the value of services is more impactful at the point of need rather than the point of buying for a future need.
A financial downturn should be seen in this context. Show the client why you have spent all that time planning for something that may not have happened – but did.
There are planners who are passionate users of cashflow modelling, because they believe cashflow modelling is the key enabler to all this.
Used well, it can ensure downturns aren't a threat to your client relationship but an opportunity to show value.
Dreams are turned into goals interactively with the client. You can leave visual imprints of future losses and create contingency plans that are understood and accepted.
Ultimately, it's about empowering clients. Financial planning clients aren't focused on their pensions and investments - they are focused on living.