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The 3Cs to Enhance Your Negotiation Skills

A new calendar year represents a fresh beginning and an opportunity to think anew about the adviser-client relationship. Financial advisers know that their annual planning conversations with clients may need to address sensitive topics related to the changing regulatory environment, particularly as we near the proposed timing for implementation of the Department of Labor’s Final Rule. These issues will certainly be on the agenda if you are transitioning to a fee-for-service model.

But the ability to engage clients in potentially difficult discussions is always key to building a successful business.

Central to these discussions is the ability to negotiate—a skill I have spent years cultivating through personal successes and failures, and through teaching thousands of business leaders and professionals at the University of Pennsylvania’s Wharton School. I consulted on a Janus Labs program, titled the Science of Negotiations, to prepare advisers to have better planning meetings. The core tenets of the program, and negotiating generally, are what we call the three Cs: commitment, candor and credibility.

Commitment: We know that as a financial adviser, your commitment is to serve as a trusted counselor to your clients. Working in a client’s best interest isn’t something new that rules require—it’s what you’ve always done. You need to convey this commitment clearly and consistently in order to build and maintain the kind of trust that allows for open dialogue. By reminding clients of your commitment to them, and connecting your actions to that commitment, the value of your relationship and services should always be top of mind for them. This way you can raise sensitive issues when the client can hear and process them fully, not simply because a deadline requires it of you.

Candor: We’re big proponents of the “radical candor” used at Silicon Valley companies like Facebook and Google. For advisers, this means demonstrating that you care personally about each client, while also directly addressing how DOL-related changes will affect them. Be a straight talker. Don’t beat around the bush: be clear that this is a difficult subject but the new services you offer are commensurate with what the client needs. Telling clients about the products and services you are not recommending is also important. Transparency is key. When you reveal information that’s not necessarily in your best interest, but is clearly in the best interest of the client, you build trust.

Credibility: Openly and willingly revealing information about products and fees increases your credibility, and research shows that credibility is the single most important asset of effective negotiators. Your credibility rests on expertise, competence and trustworthiness. It means that: 1) you bring your clients valuable knowledge and insights; 2) you apply your expertise to their benefit with skill and diligence; and 3) you consistently use your expertise and competence to create long-term value as a trustworthy counselor.

Strong negotiation skills will help you communicate more effectively in all your interactions. Demonstrating that you are credible, candid and committed will put you in a position to better navigate the sensitive topics that are inherent to financial advice, including fees and regulatory concerns. And this is a good time to start strengthening those skills, as you begin scheduling the conversations that will guide your client relationships throughout the new year.

For more information on how to use The Science of Negotiations for meaningful conversations with your clients, please contact your Janus Director or visit www.janus.com.

G. Richard Shell

 

G. Richard Shell
Legal studies and Business Ethics Professor
University of Pennsylvania’s Wharton School
Philadelphia, Pa.


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Helping Your Clients Face Their College-Financing Fears—Part 2

In part one of this two-blog series, we established that higher education is frighteningly expensive. But with a proper plan in hand, you and your clients will be better prepared to tackle college tuition bills in an organized and financially sound way.

Recently, I explored the factors that affect financial aid eligibility. In this post, I’ll provide some tax smart tips to help your clients maximize their tax benefits. (Our new research, Tackling the tuition bill, has all the details on both topics.)

While it may seem intuitive to first tap into the qualified education savings accounts when the bills come, there are a few things your clients need to consider before doing so.

Educate your Clients on Potential Tax Breaks Before They Tap 529 Accounts
Consider the AOTC for the parent, or the child. Don’t rush to deplete the 529 account in the first year, as there may be some beneficial tax credits available each year. For example, the American Opportunity Tax Credit (AOTC) is available to taxpayers who meet income eligibility requirements.

The credit amounts to the first $2,000 spent on qualified education expenses and 25 percent of the next $2,000, for a total of $2,500. Funds counted toward this credit must come from current parental income or parental-owned assets held in taxable accounts. In other words, they cannot be funds from qualified savings plans, such as 529 plans. This tax credit can be taken each year in which qualified education expenses are incurred for a maximum of four years per student. With a total benefit of $10,000 over the student’s educational career, it may be smart for eligible parents to first take advantage of this credit before spending from 529 accounts.

Note that if the parents’ income exceeds the AOTC limits, but the child is reporting income for that tax year, the child may have the option to claim the AOTC. This would require the child to file as an independent, rather than as a dependent the parent’s tax return. Although this is possible, there may be other financial implications in doing so. The AOTC is refundable up to $1,000.

See if your clients qualify for the LLC or other deductions. Some taxpayers, such as those who have exhausted the AOTC, may qualify for the Lifetime Learning Credit (LLC). This credit is worth up to $2,000 for expenses related to tuition and other qualified expenses for students enrolled at an eligible financial institution (note that for the 2016 tax year, the Lifetime Learning Credit is worth 20 percent of the first $10,000 of qualified college expenses. The LLC is not refundable). The credit can be used each tax year and applies to undergraduate and graduate school, as well as programs geared toward professional degrees or expanding job skills.

If they do not qualify for the AOTC or the LLC, the Tuition and Fees Deduction may be another option. For the 2016 tax year, this deduction can total up to a $4,000 reduction in income. Note that only one tax credit or deduction (AOTC, LLC, or Tuition and Fees Deduction) may be claimed per tax year. Keep in mind that IRS Publication 970 is a good source for more information on education tax credits and deductions. The figure below provides a brief summary of the most basic information.

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Tax benefits may ease both tuition and tax bills.

Be Mindful of Tax-Sensitive Withdrawals
Aside from the potential tax benefits that can be received from paying for college expenses out of pocket, there are tax implications to be aware of when your clients are withdrawing from retirement accounts and taxable savings accounts to pay for college. Withdrawals from parent-owned and student-owned tax-deferred retirement accounts (such as traditional IRA and 401(k) accounts) are taxed as ordinary income. Note that withdrawals that meet the criteria of qualified education expenses are not subject to the 10 percent penalty tax. Withdrawals from parent-owned and student-owned Roth IRAs, on the other hand, can be taken tax free as long as the distribution is composed of the contributions made into the account on an after-tax basis. Withdrawals that represent earnings will be taxed as ordinary income. Note that Roth withdrawals in excess of contributions are not subject to the 10 percent penalty tax if used for qualified education expenses.

As you’re aware, care should be taken when selling assets from taxable accounts, whether parent-owned or student-owned. Realized gains will be subject to capital gains tax, but they may be offset with realized losses elsewhere.

Although the challenges of paying for college expenses may seem overwhelming to your clients, proper planning is critical to a successful outcome. Remember that bottle of smelling salts I suggested keeping at your desk in part 1 of this series? Put it away! Remember that balancing financial aid and grant considerations with tax-efficient spending strategies is a good way to help your clients start facing their college financing fears.

maria-bruno

 

Maria Bruno, CFP®
Senior Investment Analyst
Vanguard Investment Strategy Group
Philadelphia, Pa.

 

Editor’s note: This post originally appeared on the Vanguard Advisor Blog. See also Part I of the series. The author gives a special thanks to her colleagues Jonathan Kahler and Jenna McNamee for their research contributions.


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Helping Your Clients Face Their College-Financing Fears—Part 1

Higher education is expensive—frighteningly expensive. For most parents, providing for their children’s college education is second only to retirement as their largest investment goal. But even with diligent saving, the first tuition bill may be a shock to your clients, so you may want to keep a jar of smelling salts on your desk just in case.

How can you help your clients face this fear head-on? It’s all about creating a solid plan. With a proper plan in hand, you and your clients will be better prepared to tackle college tuition bills in an organized and financially sound way. Sallie Mae recently published research titled “How America Pays for College 2016,” that reported families are paying less out of pocket for college as they take advantage of scholarships and grants. The report noted that scholarships and grants funded 34 percent of college costs in the 2015-2016 school year, up from 30 percent the prior school year.

Vanguard’s new research, Tackling the tuition bill, provides a practical framework to help you develop a plan with your clients. In this post, I’ll explore the factors that affect financial aid eligibility. (In Part 2 of this series, I’ll provide tips on how to help your clients maximize federal tax perks while also considering how to spend tax-efficiently from assets earmarked for college.)

As you know, household assets and income affect financial aid eligibility, but these sources are not treated equally, based on whether they come from the student or the parents. The graphic below summarizes the key points—income matters more than assets, and student income matters more than parental income.

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The potential impact of student and parental income and assets on financial aid.

So what does this mean? Obviously, individual circumstances will vary, but here’s a savvy strategy to pitch to your clients:

  • Spend the student’s assets first.Because student assets affect aid eligibility more than parental assets (oddly enough, 529s owned by dependent children are considered parental assets), it can make sense to spend student assets before spending from a 529 plan. Such an approach gives 529 savings more time to compound tax-free. And by spending the more heavily penalized assets early, students increase their aid eligibility in later years, when inflation may boost tuition costs.
  • Tell the grandparents to hold off.Gifts from grandparents and others are considered student income, which has the greatest impact on your student’s financial aid eligibility. As a result, consider tapping those grandparent-owned 529s in the later years of college, when they will no longer be reported or considered in financial aid evaluations.
  • Don’t drain the 529 right away.Parent-owned assets, including 529 plan accounts, have more limited impact on aid eligibility. Unless a client plans to pay for the entire degree with 529 savings, it can make sense to spend from this account strategically over the course of a student’s college career. The account can benefit from continued tax-free growth. A client may also be able to time 529 withdrawals to create opportunities for additional aid or benefits.

I realize there’s a lot for you and your clients to think about; but with a bit of knowledge of the rules and some planning, the tuition bills can be tamed. Look for part 2 of this series, in which I’ll share some tax-savvy tips for tackling tuition.

maria-bruno

Maria Bruno, CFP®
Senior Investment Analyst
Vanguard Investment Strategy Group
Philadelphia, Pa.

Editor’s note: This post originally appeared on the Vanguard Advisor Blog. The author also gives a special thanks to her colleagues Jonathan Kahler and Jenna McNamee for their research contributions.


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5 Reasons Financial Advisers Can’t Afford NOT to Blog in 2017

Your relationships with clients and prospects need to be strong to weather 2017’s potential storms—the DOL fiduciary rule, a new president looking to draw back government regulation, Brexit kicking in by April, increasingly unstable international markets, and more.

Building that relationship is a matter of regular communication. While your existing clientele may communicate with you via phone, visits and email, the majority of the population is now acquainting itself with new advisers online—specifically via blogs. Yet many advisers still aren’t blogging regularly.

Here are five reasons advisers can’t afford NOT to blog in 2017.

1.) It’s the fastest, easiest way to dispel client fears in a year packed with unknowns. The markets are off to a better start than they were last year, but who knows what tomorrow holds?

Most advisers could set their watches around the calls they get from their more anxious clients when things get bumpy.

Answering client questions is a great way to connect, but answering the same questions over and over can be a major time-eater. Save yourself some time by blogging regularly and sending out links to old blogs that address their concerns when market news goes south.

2.) Last year, Google acknowledged that content is king when it comes to search rankings. While Google’s search ranking factors are largely a mystery, just last year they said that new content is one of their top measurements.

The easiest way to regularly add new content to your site? You guessed it: blogging.

Bonus tip: Google also said outbound and inbound links are high on their list.

Outbound links point to other sites from your own site. The best and easiest place to include outbound links? Your blog. Shoot for one to three in every piece.

Inbound links point to your site from other sites. These are more difficult because they require someone else linking to you. But no one wants to link to your “About Us” or “Services” page. Most links between sites point to one place: blogs.

3.) It’s a good way to build trust with prospects (although, admittedly, not the best). If everything goes through with the DOL’s upcoming fiduciary rule change, a lot of advisers will no longer be able to use their fiduciary status as a differentiator. How will you prove you can be trusted?

The best way to establish trust? Actually, it’s face to face interactions—not blogs—but your blog isn’t too far down the list. You don’t have to look far for people who have established themselves as trustworthy authorities, thanks largely to regular blogging (and a fresh perspective): Michael Kitces, Carl Richards, and Wade Pfau, among others.

4.) It’s the best digital driver of new leads. Blog posts are great because they’re a permanent fixture on your site. If you write a post on tax loss harvesting and then a year later someone is searching for that subject, they could happen upon your site.

But old blog posts have nothing on new ones. In my experience, a blog post will typically earn 98 percent of its traffic within the first five days.

The best way to keep new leads rolling in is with new blogs.

5.) Stake your claim with your personas. In the financial industry, not everyone is blogging, but 2016 saw the number increase exponentially. That means countless advisers are out there blogging directly to their desired audience, which quite possibly overlaps with your audience. If you’re not blogging about stuff your personas care about, you’re probably not on their radar.

You might have all the knowledge in the world, but if you haven’t written it down somewhere online, it might as well not exist.

So make 2017 the year you start blogging, and stop missing out on prospects. If you’re still not sure how to get your blog machine up and running, check out this offering from Mineral and Wendy J. Cook Communications, one of our favorite content providers for advisers.

zach-mcdonald

Zach McDonald
Editorial Director
Mineral Interactive
Omaha, Neb.


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Creating a Childlike Curiosity

We have all heard the saying, “Curiosity killed the cat,” that implies it is better to mind your own business. However, as advisers/agents do we truly believe that that is the best course of action to make a connection?

I think it’s safe to say that most of us think we ask a lot of questions. Unfortunately, I’ve found that many of the questions that we ask are merely designed to uncover facts and not to truly understand the prospect or client’s situation and how they feel about it.

Young children have a genuine and innate curiosity when they want to get to know someone and they seem to have no problem asking a multitude of questions. Let’s take a look at how this type of curiosity can benefit you and your prospects/clients.

Gives you time to think. During one of my group coaching critic sessions, in which we role-play with our group members as if they were on the phone with prospects, I noticed that one adviser used what I call a “curiosity question.” It was, “That’s interesting could you tell me more about that?” This was in response to a prospect who gave him an objection about how he didn’t like to use certain investment products and thus wasn’t interested in setting up a meeting. After using his curiosity question, his prospect relaxed, opened up and ended up telling a story about his investment experience. This gave the adviser more time to think about what direction he wanted to turn the conversation.

Uncovers important information. The prospect revealed some interesting information about his concerns regarding a financial adviser he had worked with because years ago that adviser put him into a product that he perceived as expensive and it had lost him money when he was told that it was safe. As a result, he felt that he was misled and that consequently all advisers would mislead him. This helped my adviser client truly understand that his prospect’s real objection was trust and not about a specific product at all.

Shows that you care. After listening to the real objection about trust, the adviser acknowledged what he had heard by summarizing how it must have made the prospect feel. “That sounds frustrating, was it,” he posed. The prospect quickly shared with him how frustrated he was and the adviser in turn showed he cared by being even more curious and asking, “Why is that? Why do you think some advisers don’t take the time to fully explain their recommendations?”

Creates a connection. By now the adviser was creating a connection because he was open to getting to know the prospect and the prospect was connecting because he felt that he was being heard.

After a lengthy conversation the adviser inquired, “I’m kind of curious, if we met and I did give you a second opinion on the investments you own, would you be open to speaking with a couple of my clients to hear what type of experience they have had working with me? It’s free and maybe it would help you see that all advisers are not alike.” It didn’t take long for the prospect to simply reply, “Yes, I would like that.”

Why Childlike Curiosity Works
It’s no secret that people want to be heard. The reason that childlike curiosity works is because when you truly exude through your choice of words and tone that you care, prospects are more open to telling you a lot more about themselves. Everyone has a story, so get genuinely curious and find out what it is.

If you are ready to learn this and other valuable techniques for connecting with prospects and clients, email Melissa Denham, director of client servicing, to schedule a complimentary 30-minute coaching session.

Dan FinleyDaniel C. Finley
President
Advisor Solutions
St. Paul, Minn.


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9 Things Clients Need to Know about an Adviser

In my last blog, I focused on the importance of having a service plan for those investors seeking a shared decision-making advisory relationship. Winning in this market segment requires a clearly articulated presentation.

However, beyond the now-common “elevator pitch” and “value proposition” summaries every marketing guidebook or consultant mandates, the fact is, investors looking for a new advisory relationship will want much more before making a decision—it’s called due diligence.

Most individuals will not have a clearly articulated process, but all want to reflect on their decision and know that they made a good choice. This is not just for the basic satisfaction of a well-made decision, but there’s real economic and emotional value at hand. An adviser that encourages scrutiny shows confidence and transparency, two characteristics central to a trusted advisory relationship (note: for a discussion about making this scrutiny visible to your market, see “Removing Purchase Obstacles to Valuable Benefits”).

Making Business Personal
Whether a formal or informal process, there are nine key messages that every prospect must know about an adviser. Unlike an institutional due diligence process that emphasizes sterile facts, an adviser personalizes these to not only reach the prospect’s mind but also the heart. Both must exist for a professional relationship to flourish.

1.) The Key Benefits Clients Receive: This goes beyond the service listing often found in standard value propositions to personalizing the importance of each benefit (see “Clients Buy Benefits Not Features”).

Example: “When my clients see their needs and aspirations carefully marked as milestones in the wealth plan, a real sense of financial purpose takes over.”

2.) Pricing Services: Clients’ value a fiduciary’s watchful eye over increasing complexity and uncertainty, and this must translate into an appreciation for relationship pricing such as a retainer or fee on AUM, compared to a commission approach that is inherently transactional.

Example: “We only work for your best interests, and this isn’t something that is turned on or off but rather is a constant, and that’s why we price our services in a bundled fee for the wealth we oversee.”

3.) Services Have Value: Services deliver financial or emotional benefits, and a specific example brings tangibility.

Example: “Our retirement income planning ensures that the income you receive is done so efficiently. Recently, we increased a client’s monthly income by XX percent through improved tax efficiency.”

4.) Your Service Practices: Move beyond the overused term “relationship” to how a client actually experiences the delivered services.

Example: “It’s important that we get to know you and your family. Then, when we have our meetings, you’ll see how our services directly connect to what’s on your heart and mind.”

5.) Why You’re an Adviser: Your advisory business is a service business delivered by a server. It takes a certain personality willing to serve, and the energy source for this is an adviser’s passion.

Example: “My family struggled with financial anxiety and my heart still aches for the burden it caused. I became an adviser to bring peace of mind to my clients.

6.) Your Community Involvement: Your advisory business is a people business, and this is best illustrated in community involvement.

Example: “My family took root in this community back in [year], and we are involved in X, Y and Z. This involvement gives us a deep appreciation for what it means to be a true neighbor and, since many of our clients are local too, we connect on many professional and personal levels.”

7.) Your Credentials: More than listing specific charters, list needs-based expertise.

Example: “My expertise sits right in the center of what you need in identifying a retirement-income plan. I’ve developed similar plans for XX of our clients, so it’s rare that an issue comes up that I haven’t already encountered.”

8.) How You Built Your Company: Knowing why an advisory firm started tells a lot about the adviser.

Example: “It was important to me that my business dedicate itself to specific wealth needs instead of being diluted as would be the case in a larger firm.”

9.) Your Business’s Objectives: An advisory firm is usually a community-based business.

Example: “We’re a small business in town and when our clients achieve financial, social and emotional success, the whole community benefits.”

Messaging to Win
Clients who understand an adviser’s relatable characteristics easily can paraphrase them to others. When a client speaks in this way, he or she not only offers the adviser an important due diligence reference, but the adviser’s characteristics become further internalized.

Kirk Loury

 

Kirk Loury
President
Wealth Planning Consulting Inc.
Princeton Junction, New Jersey


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4 Tips to Help Grieving Clients

Amy Florian, CEO of Corgenius, was a 25-year-old with a 7-month-old baby when her husband John kissed her good-bye for the last time to go on a business trip.

A car hit his car and John died instantly.

Florian was devastated. She had money from a life insurance policy she needed to invest so she sought out a financial adviser. He did right by her in terms of investing her money well, but he just didn’t understand what she was going through. He sometimes made her feel like a number in a portfolio rather than a whole person.

“I stayed with him for some time because it was clear he knew how to invest my money,” Florian explained. But then she switched. She found a planner who made her feel more comfortable.

Widows oftentimes feel uncomfortable with financial planners as shown in the fact that more than 70 percent switch advisers after their husband’s death. It’s helpful for your clients for you have the skills to help them deal with their grief.

Helping Them Through
Baby boomers are getting older.

“We had a baby boom,” Florian said. “We’re in for a death boom and we’re not prepared.”

You are going to have to deal with your client’s grief at that first appointment with them after their partner dies. It’s going to be difficult.

“It’s awkward,” Florian explained. “It’s uncomfortable.”

But with these helpful grief support tips, you will help your clients. It is important, Florian said, to note that grief happens whenever there is a transition, whether it’s death or moving to a new city.

Ask open-ended, invitational questions. Some examples include: What happened? Who was with you? How did you find out? Then after a few months have passed: Last time we talked you said you felt a certain way, do you still feel that way now? Grieving people want somebody who will listen.

Stay away from the standard responses, “I’m sorry,” or “I know what you’re going through.”

Know that there are two main styles of grief: instrumental grievers, who focus more on their heads (things like logistics and specific events); and intuitive grievers, who focus more on their heart (the experience of everything, what they are feeling).

Have boxes of tissues everywhere, but never hand them a box of tissues when they are crying as doing so will send the message that you are making them uncomfortable and you want them to stop. Say, “You could use any of these tissues if you’d like, it’s up to you.”

Let them know that your office is a safe space and that they can cry. Encourage them to feel their grief, because that is the truly strong thing to do.

Have them write down their fears. Ask them what’s the worst thing they can imagine happening to them right now and have them write it down. Studies show that when you write down fears, you take away their power.

“I’m teaching you to do the right thing for your client,” Florian said. “It’s what we all should be doing, we just haven’t been taught.”

AnaHeadshot

 

Ana Trujillo
Associate Editor
Journal of Financial Planning
Denver, Colo.