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Use These Behavioral Tips to “Science” Your Clients on Saving

According to a 2017 study from the Employee Benefit Research Institute (EBRI), only 61 percent of responding American workers reported having saved money for retirement, with 56 percent of respondents reporting they are currently saving (at the time of the survey) for their golden years. Only 18 percent of respondents feel very confident that they are doing a good job preparing for retirement, with another 38 percent feeling somewhat confident.

As a financial planner, this isn’t news to you, though it may be more disappointing for you than most given your line of work. As someone on the front lines of trying to help people understand the value of saving for anything later in life, you know it can be an uphill battle.

In this post, I want to provide you with a few tools to help your help clients get past some of the standard pitfalls around saving, using the very science that generates the issues as your weapon. Helping clients understand the reasons behind why we make excuses to avoid saving may be just what they need to overcome these challenges.

Excuse No. 1: I don’t have enough money to save.

For some investors, this is a valid excuse. If the money’s not there, it’s not there. For others, however, it may be the type of Catch-22 situation that you can help attempt to reverse simply by understanding behavioral tendencies. In other words, the old adage telling us that “the more we make, the more we spend,” is actually deeply rooted in behavioral science.

One of the more useful qualities we have as human beings is our ability to quickly adapt to changing circumstances. But some experts like James Roberts, professor of marketing at Baylor University, believe that our adaptability may hinder us in terms of saving and spending. He uses the example of a college student who wants to get out of his or her dorm, then moves into a rental house but gets tired of having roommates, then dreams of a small house, then a bigger house (and on and on from there) to show that our minds very quickly move on to the next step when we attain a goal or desire.

Another reason behind our penchant to overspend and under-save is simply that we may have seen it from our parents and them modeled the behavior. In other words, over time, we have fostered and intensified these bad habits which, as we all know, can be extremely difficult to break. However, some researchers believe that we have the ability to change almost any habit through repetition via a series of mental processes.

While you (and by extension, your clients) can be the judge of whether this might work for you, I would recommend picking up the book The Power of Habit by Charles Duhigg, which takes a serious look at habit formation and the science behind why we do what we do. Besides the interesting case studies and frameworks, the heart of Duhigg’s theory centers on the importance of simply understanding that habits can be broken:

“Once you understand that habits can change, you have the freedom—and the responsibility—to remake them. Once you understand that habits can be rebuilt, the power becomes easier to grasp, and the only option left is to get to work.”

The point? Clients may be, in some ways, relieved to hear that the negative behaviors that keep them from saving money are not totally their fault (thanks a lot, science), but an equally important part of the message is that there are ways to fight to overcome these ingrained habits.

Excuse No. 2: Retirement (or other savings goals) is/are just too far in the future to focus on today.

I was meeting friends at the National Western Stock Show in Denver a few summers ago, and when I arrived, I realized that I hadn’t purchased tickets (and as a result, probably could have reached up and touched the roof from the nose-bleed seats I had to grab on-site). My immediate thought was, “How did you not think to do the one thing you needed to do prior to attending that event?”

According to a recent study, part of the answer (beyond my own struggles in staying organized) may be that I made the plans too far in advance for my brain to plan for that contingency. This story dovetails well with one of the most common excuses for failing to save for retirement (or other goals)—investors just don’t have the wherewithal to plan that far ahead. If it’s difficult for us to plan for an event a few months down the road, remember that your clients are looking at planning 30 or 40 years into the future.

According to Dale Griffin, associate dean and professor of marketing at the Sauder School of Business at the University of British Columbia, we can look at “temporal construal” and “loss aversion” as potential behavioral biases that make it difficult to make good decisions about our future. Griffin explains “temporal construal” as the tendency for far-off events to be mentally experienced differently than closer events.

“Events or ideas far off in time are thought of in abstract and general terms, with an unavoidable overlay of optimism; so thinking about yourself (or your children) in 40 or 50 years creates a mental image that is akin to pondering a vague, general, overly rosy idea rather than a detailed individual with real problems,” Griffin wrote in this Slate article.

In the same vein, studies on the theory of “temporal discounting,” or the idea that individuals prefer more modest immediate rewards to larger potential future rewards, have shown that we have trouble seeing future events in clear focus and difficulty in attempting to imagine what our future selves will look and act like. One can see how these types of mental blocks can affect our ability to take saving for the future seriously in the present.

“Loss aversion,” according to Griffin, is essentially the idea that humans are more likely to think about potential “losses” than potential “gains” in the long term. In other words, we are programmed to be more worried about future debt than what we might “gain” by saving for retirement, which may result in attempting to pay off our mortgages or student loans more quickly, at the expense of building a retirement account.

However, the idea that repetitious activities in the present, such as monthly mortgage or student loan payments, can help our minds focus on making decisions to solve long-term challenges in the present, can offer a glimmer of hope from a savings perspective. Specifically, the idea that providing ourselves with short-term rewards or benchmarks (instead of trying to visualize a single “number” or long term goal), may be helpful in building a saving habit for the long-term, and can at least provide a place to start (or something to hang our collective hat on).

In addition, these findings may help you help your clients look at the tendency to not save enough with a fresh perspective, and to consider fresh solutions. Instead of beating themselves up because they failed to meet their savings goal for the third straight month, they could try something more constructive and potentially even fun.

For example, you may recommend that they download of the many free face-aging apps available for iPhone or Android. AgingBooth and FaceApp are two of the more popular applications that use alogrithms and neural-network technologies to show us what we might look like when we’re much older. Although the accuracy of the imagery is certainly up for debate, I can attest that seeing my face aged years into the future was a disconcerting experience and provided a surprising dose of perspective.

Perhaps these applications give you a unique opportunity to break through the “temporal discounting” barrier and make the idea of aging more real for your clients. MerillEdge, in partnership with Bank of America, was one of the first to launch this type of application in 2014 (called FaceRetirement), and according to Bank of America, 60 percent of the nearly 1 million people who used the app chose to learn more about retirement and beginning to plan for the future.

Or, because the causes we have discussed have roots in behavior, perhaps finding a few easy-to-consume, investor-friendly articles to share with your clients on behavioral science will help provide some useful insights that they just didn’t have before. While we can’t say the same for all financial topics, it is an extremely interesting part of what you do as a planner and has the potential to engage a wider audience.

Excuse No. 3: I can’t save money because I lost too much in the last crisis.

There are certainly situations where this might be true, and if that’s the case, your client is in good hands working with a planner like you. For many others, and especially individuals in younger generations, the statement above is a prime example of the “sunk cost fallacy,” the very same behavior that kept me sitting in the theater during the fourth installment in the Transformers franchise instead of walking out after the first 20 minutes.

A “sunk cost” can be defined as any cost (not just monetary, but also time and effort) that has been paid already and cannot be recovered. The “sunk cost fallacy” is an extension of the human behavior of “loss aversion” mentioned above, in that we are programmed to focus more on the costs we have already accrued (and that we can never get back) than the future experience we are putting our time, money or effort toward.

Thus, the more we invest in something, the harder it may be to let it go (even if it turns out to be a terrible investment). I’m sure that every one of your clients can think of a time where they continued to stick with something for the sole reason that they had already put a lot of money or effort toward its completion – we all have. And to be clear, sometimes that can be a good thing (i.e., finishing a degree, completing a rigorous fitness program, climbing a difficult peak, etc.).

However, the “sunk cost fallacy” can become an issue with saving money, because subconsciously, our minds may be thinking about the money we have lost in the past and urging us to try to get that investment back. As you are well aware, this can encourage risk-taking and other behaviors that have the potential to cut into the portfolio your clients have worked so hard to build.

Conclusion

If this was easy, Amazon wouldn’t have 105,000 results on the search term “behavioral science.” The human brain is a powerful tool, and as such, each of the behaviors I mentioned here will not be easy to counteract.

Because these behaviors are all propagated by the mind, simply understanding the “why” behind our struggles to focus on the future is an important place to start. Learning how these behaviors may affect them in a saving capacity is only the first step for your clients—the next will be helping encourage them to put in the effort on a daily basis to overcome these obstacles.

Your clients are facing an uphill battle, but there’s nobody better than you to help guide them.

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Dan Martin is the Director of Marketing for the Financial Planning Association, the principal professional organization for CERTIFIED FINANCIAL PLANNERTM (CFP®) professionals, educators, financial services professionals and students who seek advancement in a growing, dynamic profession. You can follow Dan on Twitter at @DanW_Martin.


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These Tips Can Help Advisers Attract—and Keep—High Net Worth Clients

By Robert Powell, MarketWatch.com

For many advisers, high net worth individuals or households — those with more than $1 million in investible assets — are a kind of Holy Grail.

The reasons are clear. HWNIs, which represent just 0.7 percent of the world’s adult population but own 45.2 percent of the wealth, are good for business. They’re highly profitable and loyal, according to Rebecca Li-Huang, a wealth adviser at HSBC, who wrote a chapter in the June 2017 book Financial Behavior: Players, Services, Products, and Markets.

Consider: An adviser can earn one-half of 1 percent of assets under management on a $10 million account, say $50,000 a year. By contrast, the very same adviser would earn only $1,000 a year on a $100,000 account. For financial advisers, the attraction should be obvious.

But there’s more to the story, and advisers should get to know the psychology of HNWIs before taking them on as clients. Just like regular folks, Li-Huang wrote, they are prone to behavioral biases and judgment errors, not perfectly rational, utility-maximizing, unemotional homo economicus.

In short, wrote Li-Huang, they are humans. And in the U.S., according to Li-Huang, they often share a particular way of thinking about what they want from their money that financial advisers should consider when trying to serve them.

American HNWIs like to direct their investment according to their personal beliefs and values, and they play a large role in public life through philanthropy and politics, according to Li-Huang. And many want to leave a legacy by giving back to society while generating a financial return on their investments.

“The holistic returns on cultural, environmental, social, and political causes are gaining importance in wealth management,” wrote Li-Huang. “The trend toward helping HNWIs address their personal aspirations and social-impact needs is part of a broader wealth management industry transition toward giving holistic wealth advice.”

Focus on goals while mitigating stress

How can advisers do that? For starters, according to Li-Huang, advisers can focus on goals-based financial planning, holistic wealth management, and services that address investments, lending, tax and estate planning, insurance, philanthropy, and succession planning.

With goals-based planning, wrote Li-Huang, success is measured by how clients are progressing toward their personalized goals rather than against a benchmark index such as the S&P 500 stock index. (Publicly traded securities don’t necessarily contribute that much to a HNWI’s wealth, notes Li-Huang, as just one in eight millionaires say equities were an important factor in their economic success.)

Still, she argues, HNWIs do need to invest in diversified markets and use tax-efficient strategies. And advisers can add value by “mitigating psychological costs, such as reducing anxiety rather than improving investment performance” and by focusing on financial planning and advice on savings and asset allocation.

Li-Huang cited research that suggests that investors don’t necessarily want the best risk-adjusted returns but, rather, the best returns they can achieve for the level of stress they have to experience, or what some call anxiety-adjusted returns.

In the cast of HNWIs, they tend to practice something called “emotional inoculation.” They outsource the part of the investment decision-making that induces stress, according to Li-Huang.

HNWIs are especially looking to their wealth manager for help with philanthropy. They are looking for “support and advice, such as setting goals and defining their personal role in their areas of interest, identifying and structuring investments, and measuring outcomes of their social impact efforts,” she wrote.

Given that advisers need to provide their HNWI clients with tax and philanthropy specialists.

In advisers they trust

When HNWIs consider selecting an adviser, they tend to focus more on honesty and trustworthiness than past investment performance or standard professional credentials, according to Li-Huang.

That’s not to say that professional credentials and competence don’t matter — they do — but, rather, that they are not sufficient in and of themselves, according to Li-Huang.

HNWIs — who tend to have less time and resources for due diligence than typical clients of financial advisers — use something called “trust heuristics” when searching for an adviser with whom to work.

In other words, they’re even more likely to assume that the category leaders are among the best in a highly regulated world even as they hold advisers referred by family members, friends and acquaintances in high regard, according to Li-Huang.

Consequently, perhaps, HNWIs tend to trust their advisers much more than less wealthy retail investor trust their financial advisers.

So, what is trust to a HNWI? According to Li-Huang, HNWis trust advisers who show signs that they’re acting in the client’s best interest, reach out proactively, charge reasonable fees, deliver mistake-free work — and admit when they’re wrong.

In many ways, attracting and retaining HNWIs isn’t much different that getting and keeping what are called “mass affluent” clients, who have with assets of less than $1 million. But the differences are worth noting, because the stakes are higher, and a bit of extra knowledge can pay off.

This story first ran on July 21, 2017. Reprinted with permission.

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DOL Deconstructed: Regulations, Guidance and Suggestions on Documenting Alternative Investment Due Diligence

With phase one of the Department of Labor’s fiduciary rule having gone into effect on June 9, 2017, financial advisers must comply with “impartial conduct standards,” which require that advice be in the best interest of retirement investors.

The best interest standard has two primary components: prudence (professional standard of care), and loyalty (based on the interests of the customer rather than the adviser or firm). Advisers are also required to charge clients no more than reasonable compensation. The final phase of the rule is set to go into effect on January 1, 2018. See the DOL’s Transition Period Q&A here.

For most advisers, compliance with the impartial conduct standards is simple—most already give advice that is in the best interest of their clients. What may not be so simple is documenting adherence to the standards now that they will be more scrutinized. In this article, we will discuss the current regulation and offer guidance around alternative investment documentation.

Key Language on Documentation from the Regulation and Guidance

Here is a list of key language and documentation you should familiarize yourself with:

DOL Fiduciary Rule (client interactions): Broker dealers, financial advisers and registered investment advisers (RIAs) “must document why recommendations were in a client’s best interest,” including, but not limited to, the type of account used, the products that are recommended, and why the recommendation was in the client’s best interest at the time it was made. Read more from the Department of Labor here.

NASD Notice to Members 03-71 (non-conventional investments): In addition to establishing written procedures for supervisory and compliance personnel, “members must also document the steps they have taken to ensure adherence to these procedures.” Read the full FINRA notice here.

FINRA Regulatory Notice 10-22 (Regulation D offerings): In order to demonstrate that it has performed a reasonable investigation, a BD “should retain records documenting both the process and the results of its investigation of Reg D offerings.” Read the full FINRA notice here.

What to Document in Alternative Investments Due Diligence?

The process. Document your processes for identifying alternative investment opportunities. Keep a file of the list of any and all sectors, asset classes, products, and managers reviewed. Documentation tip: Keep a log of any screens you have run to narrow the universe of investment opportunities available to your clients, as well as a log of any training or education you have completed while conducting your research.

Fees, characteristics, risks and rewards. Ensure documentation of how you are educating yourself on the strategies considered. Most importantly, you’ll want to document your review of a product’s fees (especially in relation to other similar products), investment characteristics, key risks and rewards and how management intends to meet the product’s objectives. Keep an initial file and ensure you have a way to track the most up-to-date key documents and interviews with managers. Key documents include any fee comparison reports, the offering documents, performance information, brochures, quarterly/annual reports, ADVs, and any other available data. Documentation tip: Try to meet or speak with key decision-making personnel for the investment manager if possible and have them explain how they intend to meet their stated investment objectives.

Operational due diligence and analysis. Document your audit of a firm’s operational structure, adherence to compliance requirements, background checks and any red flags that may arise. Many advisers and broker-dealers rely on third-party due diligence providers for this step. Documentation tip: While it is common for third-party diligence firms to be utilized for this important step in the due diligence process, it is important to remember that you may not rely solely on a third party for due diligence. You must be familiar with the content of any third-party reports and any red flags highlighted in these reports. Document the follow-up on red flags and any conclusions.

Ongoing monitoring. Due diligence does not stop with an initial review. It is important to remember that a sound due diligence process means continually performing analysis on each manager, updating your key documents on a quarterly basis, conducting formal meetings and monitoring the portfolio for any changes or red flags. Documentation tip: Document any and all ongoing due diligence and ensure you are set up to receive notices of important events for alternative investment programs and managers.

Summary

Keep hard copies, use electronic storage and/or consider using a third party to track training and education, due diligence, research and compliance. Keep an easily accessible trail of your due diligence efforts, whether electronically or on paper, to easily demonstrate what you have done including not only the results of your due diligence but the process you followed. (Note: SEC Rules17a-3 and 17a-4 stat that during the first two years, records must be kept in a readily accessible place. Most documents must be kept for up to six years, depending on the document, although formation and organizational documents must be kept indefinitely). Always remember, if it isn’t documented, it didn’t happen!

Laura Sexton
Laura Sexton is senior director of program management at AI Insight. She holds her bachelor’s degree in education from Purdue and has held the FINRA Series 7, 24 and 66 securities and life insurance licenses. She resides in Massachusetts with her husband and two children. Visit her on LinkedIn.

 

Editor’s note: a version of this post first appeared on the AI Insight blog in March 2017.

 


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Be A Gen Savvy Planner: Take Off Your Generational Lenses

Our early environments shape us for the rest of our lives.

That’s why there is so much difference between the generations, said Cam Marston, an expert on generational change and founder of Generational Insights.

Marston told FPA Retreat attendees in April that baby boomers are tough and were never told they were unique or special, so they overcompensated by telling their kids—who are Gen-Xers and millennials—that they were extra special. Therefore, those two generations were raised to think they were unique and that their needs were very important.

“What imprints on younger people impacts them for the rest of their lives,” Marston said. “Millennials and Gen-X have been brought up to say, ‘What’s going to make me happy?’

Planners should understand the vast differences between the generations and know how to talk to and communicate with each one.

Boomers. To connect with the boomer, Marston said, you need to understand how they see the world. They’re hardworking and they have the mentality that retirement is going to be great. They want to hear your story and know where you come from.

Hanging up your diplomas or certificates in your office during your meetings with boomers is a good idea.

Key points about boomers:

1.) Understand and acknowledge their work ethic—which they generally measure in hours (i.e., “I work 50-60 hours a week”).

2.) Ask them about their accomplishments and acknowledge what they’ve done.

3.) Communicate that you are on the same page. Emphasize that you are a team.

5.) Pick up the phone and call them and meet with them in person.

6.) Beware of too much technology.

7.) Know the difference between “leading” baby boomers (older than 62 and like communication that emphasizes how they deserve retirement); and “trailing” baby boomers (ages 53-61 and need to be reassured that they’re going to be OK despite setbacks they experienced in retirement savings thanks to the recession).

Gen-Xers. This generation are stalkers of product and services. They demand to be an educated consumer and are leery of “being had,” Marston said. They are interested in how well you can teach them to make a good decision. Your relationship should be a partnership.

Key points about Gen-Xers:

1.) They are going to do research and have you prove why your advice is better than what they found via this research.

2.) They tend to prefer email and your communication should be brief, succinct and to the point.

3.) Don’t waste your time leaving them voicemails.

4.) Make sure your web presence is pristine—they’ll look you up online before contacting you.

5.) The Gen-X mother has tremendous buying power and influence. She’s coming up in terms of her earning, she’s informed and she’s fully engaged. Keep her happy.

6.) Communicate how decisions will affect them personally.

Millennials. Millennials are individuals with a group orientation. They believe they’re unique but they also enjoy being part of a group.

Millennials think, “You tell me about me and what’s going to happen and how I’m going to feel about it,” Marston said.

Key points about millennials:

1.) They’re optimistic.

2.) You will get more attendance from them if you ask them to bring people. Engage them as a group and they will be more interested.

3.) They feel they are unique and special.

4.) They don’t think so much in the long-term as the other generations.

5.) They are achieving milestones (i.e., getting married, buying houses, having kids) later in life than the previous generations.

6.) Communicate via text messages and social media.

Understand these key points about each generation and try to see the world through their eyes when you’re talking to them.

“Everybody pitches and articulates their value from their own generational lense,” Marston said, “but I’ve got to take my lenses off and put on somebody else’s.”

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Ana Trujillo Limón is associate editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org


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The Power of Wow

After her particularly stellar basketball season, John Evans, Jr., Ed.D., took his 10-year-old daughter for a trip to the Sarasota, Fla. Ritz Carlton.

On the elevator ride up to their room, he praised her rebounding, her boxing out, her shooting. They settled in, left the hotel, and came back to their room to find a tiny chocolate cake with a message on top reading, “Congratulations on the great season, Susana.”

The bellman had heard the entire conversation and seized the opportunity to give these two guests what Evans refers to as a “wow moment.” He defines this as a unique, emotionally engaging experience that goes beyond expectations and is readily recounted.

Evans, executive director of Janus Henderson Labs of Janus Henderson Investors (formerly Janus Capital Group), told FPA Retreat attendees in April 2017, that generating wow moments for a great client experience, like the one he had at the Ritz Carlton, starts with energy levels, is followed by clarifying your purpose, and ends with expanding your team’s capacity to deliver authentic wow moments (read more about “wow moments” straight from Evans in the June 20 FPA Practice Management Blog post titled, “The Circle of WOW”).

“We have an energy crisis here, ladies and gentleman,” Evans said. “But here is the thing: we can create more energy.”

Evans noted that there are four areas on the energy pyramid: the physical (the fundamental source of fuel, sleep); emotional (the capacity to manage emotions); mental (capacity to organize and focus attention); and spiritual (the purpose beyond self-interest). Of those, we are most stressed in the mental and emotional.

But, Evans noted, stress isn’t always bad.

“Stress is the giver of life,” Evans said. “A life of pillows and marshmallows is no way to live.”

Evans notes that a way to generate more energy in all areas of the pyramid is to embrace stress and abolish multitasking, which he said is “one of the greatest enemies of extraordinary and the pathway to mediocrity.”

It’s counterfeit engagement, he said, and we all need to become more engaged. Focus on one thing at a time, establish healthy habits such as eating right and exercising, and see if your energy levels improve.

Next, advisers must clarify their purpose. Why do you do what you do? What is your purpose? Your cause? Your belief? Actively communicate that from the inside out.

Finally, appoint a “wow czar” or “chief clientologist” whose job it is to help generate these experiences. This person should have tremendous emotional intelligence and be creative.

“We have to be intentional about wow,” Evans said.

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Ana Trujillo Limón is associate editor of the Journal of Financial Planning and the editor of the FPA Practice Management Blog. Email her at alimon@onefpa.org


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5 Steps to Manage Critical Mass

It never ceases to amaze me when I get a call out of the blue from a former client who is concerned with how their business is doing. Typically, they have had a downturn in their production for various reasons such as lack of prospecting or motivation or even as a result of being complacent. However, today was an interesting turn of events when I receive a call from a previous client, Seth, who was excited to inform me that his business had reached what he termed “critical mass” and he didn’t know what to do about it.

Apparently, his consistent prospecting had paid off and he was now bringing in more assets, new accounts and doing more production than he had ever done before. I congratulated him on all of his accomplishments and that is when the conversation turned to the real reason for his call. He simply said, “I need your help. I have no idea how to manage this level of success.”

I’m sure we can all agree that this type of scenario is a good one to have, but regardless it was now proving to be a challenge. Since we had worked together, he trusted me and knew we would brainstorm a solution.

Following is a brief overview of some of the suggestions I would offer to you if your business grows beyond your expectations.

Step 1: Know What You Like and Don’t Like to Do. Some advisers and agents like to prospect while others like to manage their client base. The first step is to get crystal clear in understanding what you like and don’t like to do. Simply make a list of all the weekly activities you need to accomplish regularly and put a plus or a minus after each. It won’t take long before you realize what activities you look forward to doing and what activities you dread—if you didn’t know already.

Step 2: Do What You Love and Delegate the Rest. In Seth’s case, he loves to prospect and that is a big reason why his business had taken off. He also loves to manage his client base. However, about six months ago his assistant had decided to be a stay-at-home mom so she resigned. To save money, he chose to be his own assistant. Unfortunately, there is no one to delegate things to that he doesn’t like to do, such as the administrative activities and day-to-day operational tasks. The solution for him was to find someone who loves to do these types of activities. So, he needed to hire, train and delegate everything not involving prospecting and managing the client base to somebody else.

Step 3: Create a Scalable Business Model and Stick to It. In order to consistently manage steady growth, it’s important to have a scalable business model. Seth had realized that years ago when he transitioned his clients to fee-based accounts and continued prospecting as well as systematically servicing his clients. Within a few short years, he had doubled his assets and revenue. His fee-based model allows him the time to continue growing and managing his book of clients. And it shows.

Step 4: Create a Team. At some point, it’s important to admit that in order to continue growing and servicing your client base effectively it takes more than one or even two people. Eventually, Seth will have to look at adding some additional people to his team. One example would be to add a paraplanner to help put financial plans together. Since he is a people person and loves to connect, it might be a good fit to have someone who loves to do manage the behind the scenes work. This would free up some of his time to continue prospecting and meeting with his client base.

Step 5: Expand Your Value. Another option is to expand your value by introducing additional services to your client base. An example of this is for Seth to add an insurance agent to the team who would cross-sell to the client base offering quotes on property/casualty, life, health and even long-term care insurance. Doing this would not only help his clients but it would also help him retain his client base.

Why Strategic Growth is Important
Generating critical mass doesn’t happen to everyone. However, if you consistently prospect it can happen to you. The reason why having a strategy to consistently grow your business is important is because it will help you reduce the growing pains that come along with success. When you know what the next step is, then you are not afraid to take it.

Have you mapped out your success? If not, why not? Discuss this with me in a complimentary 30-minute coaching session. Schedule one by emailing Melissa Denham, director of client servicing.

Dan Finley
Daniel C. Finley is the president and co-founder of Advisor Solutions, a business consulting and coaching service dedicated to helping advisers build a better business.


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Framing Works: Would You Rather Have Prunes or Dried Plums?

Behavioral finance is a hot topic. It’s hard to find a professional magazine without at least one story on the subject. Unfortunately, all too often the story is interesting but not very useful as it leaves you wondering what to do with the information. Well, here are a few ideas we’ve developed from the lessons of behavioral finance that have proved useful over the years.

Consider the concept of framing; i.e., how something is presented can significantly alter how a person responds. Consider the following scenarios:

1.) Does your quarterly report provide last quarter and year-to-date performance data? Is your practice and value based on long-term planning? In behavioral finance terms that’s bad framing. Why focus your client’s attention on short-term market noise when we should be keeping their focus on the long term? Consider eliminating any performance less than one year. If asked why the change, it’s a great opportunity to remind them about the concept of long-term investing.

2.) Do you use the S&P 500 as a return benchmark on your quarterly? Ask yourself why. Are all of you clients’ portfolios 100 percent invested in large cap domestic stock? Again, this is bad framing. While it’s certainly appropriate to use the S&P as a benchmark for your core large cap domestic manager, just as you would use the S&P 600 value as a benchmark for your small cap domestic value manager, using it as a portfolio benchmark is focusing your clients’ attention on an index that is unrelated to their portfolio. What’s an alternative? If you have in fact done some serious planning for you client with MoneyGuidePro, you’ve based their needed target return on a real return. If so, the appropriate benchmark is inflation as that will enable both you and your client to measure the portfolio success relative to their planning needs.

3.) Ever have a client come in anxious to draw a large chunk of their nest egg to invest in a wonderful hot investment they just heard about from their friend/next door neighbor/handyman? If so and you’ve tried to logically change their mind you probably have not been to successful. Instead of trying to persuade them, let a financial plan do it. Rerun their plan with all of their optimistic assumptions. You then may be able to tell them: “Why that’s great, instead of that one week Caribbean cruise y’all were planning on, you can take an around the world cruise first class.” Then run their plan assuming things are not so rosy and they lose half of their investment (which could happen). Then the conversation might be: “Well, if it works that would indeed be great but if it tanks you do see you’ll have to work two more years.” That is powerful framing. When someone is excited about an opportunity they rarely think about potential negative consequences and are unlikely to listen to your warnings; however, when they provide their own framing (i.e., their own MoneyGuidePro plan) they often listen.

I hope you find these tidbits useful. They have all been tested over many years with real clients and they do work.

HaroldEvensky
Harold Evensky, CFP®, AIF®, is a research professor of personal financial planning at Texas Tech University and the president of Evensky & Katz Wealth Management in Coral Gables, Florida and Lubbock, Texas. Email HERE.