Kitces | Nerd's Eye View - Client Trust & Communication

Managing The Paradox Of Choice In Your Financial Planning Practice

nospam@example.com (Michael Kitces) — Mon, 06 May 2013 06:06:00 -0500

The proliferation of choice in recent years has given consumers more and more financial options, from choosing a 401(k) investment to selecting a long-term care insurance policy, or even identifying a financial planner to work with. While on the one hand the flexibility of choice is appealing, recent research suggests that in reality too many choices may make us so fearful of choosing poorly that it leads us to not choose at all; in other words, the more choices we have, the less likely we may be to select from any of them.

This so-called "Paradox of Choice" has significant implications for financial planners. On the one hand, it presents an opportunity to deliver value to clients by helping to narrow down and simplify the choices, or at least provide them helpful indicators about how to make a selection from amongst a wide array of complex options. On the other hand, it seems that some financial planners may be creating a Paradox of Choice for clients, sometimes by providing them with too many options about how to even work with the planner, instead of keeping the business model simple with a clear value proposition that clients can just take or leave.

The good news is that with some conscious focus, financial planners really do have an opportunity to create value for clients by helping them avoid "analysis paralysis" and drive forward to decisions and actions that improve their financial lives. But getting there may require us to collectively embrace the inherent irrationality we all have, and recognize that in many situations - including what we offer to our clients and how we help them - that offering more may lead to less, and focusing on less may lead to more.

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Behavior Change And Financial Planning - Whose Responsibility Is It When Clients Don’t Implement?

nospam@example.com (Michael Kitces) — Mon, 18 Mar 2013 06:02:00 -0500

In financial planning, it's not just about having expert knowledge and wisdom to dispense to clients; after all, if clients don't ultimately implement the recommendations and change their behaviors, then their situations will not improve. In fact, many financial planners experience frustration when client's won't act, and view the failure of clients to implement recommendations as a sign that the people must be "bad" clients. The implication is that it may be more productive for planners to seek out "good" clients instead - those who act promptly and see the value in the planner and his/her advice.

Yet research from Dr. James Prochaska and his colleagues in the field of psychology suggests that in truth, the process of changing behavior - whether with respect to eating healthier and exercising more, ending a smoking habit, or making better financial decisions - is far more nuanced. Not only does it often take more than just one dose of good advice to bring about significant and lasting behavior change, but just because someone has a meeting with a professional does not necessarily mean that person is really even ready for change in the first place. Accordingly, an ideal process for working with clients may entail first understanding what stage of change the client is in, and then adapting the advice process to help the client move forward, from wherever he/she is at the time.

The most important implication, though, is that it may no longer be appropriate to simply view clients who don't implement as "bad" clients. Instead, a greater responsibility may rest upon the professional practitioner to help clients, regardless of where they happen to be in the process of change, to move forward. In turn, this means that it may be time for financial planning training to be improved, to develop the understanding and skillsets necessary so that planners can not only inform clients of what needs to be done to improve their financial situation, but also help motivate them to actually do it!

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How Do You Nudge Clients Towards Their Financial Planning Goals?

nospam@example.com (Michael Kitces) — Mon, 25 Feb 2013 06:02:00 -0600

A common challenge in financial planning is getting clients to actually implement the recommendations they've been given to help themselves progress towards their financial planning goals. While in theory, rational human beings should easily be able to take the necessary steps to improve their situation - especially once an expert has provided a list of recommendations and required action items to do so - the reality is that we're far less rational in practice. External influences that "shouldn't" be relevant can often impact our decisions and actions anyway, and in turn this means it's possible to influence decisions, or "nudge" people in certain directions, by paying attention to how the choices are presented.

This concept of "choice architecture" - acknowledging that the way choices are presented can influence their outcomes - is relevant not only for those making public policy decisions, but also anyone who is trying to help people make positive behavior changes... such as financial planners. Whether it's helping clients to change their own behaviors, to implement your financial planning recommendations, or even to help them determine whether to hire you in the first place, it may be time to pay a lot more attention to how those decisions are delivered to clients in the first place.

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Mind-Mapping Your Way Through The Data Gathering Meeting

nospam@example.com (Michael Kitces) — Tue, 10 Jul 2012 06:01:00 -0500

For most clients and planners, the data gathering process is simply viewed as a necessary evil to obtain the information required to produce a financial plan. The planner proceeds through a long list of questions, covering everything from financial details to client goals and aspirations, recording it on a data form or notepad to be used later. A new approach is emerging, though - to complete the data gathering process using mind mapping, which organizes information visually, in a manner that both the planner and client can build upon. The end result is a data gathering meeting that is more collaborative and interactive, as clients become part of the process of building a mind map that takes shape before their eyes - and also becomes an actual takeaway from the meeting, as the mind map document itself is provided in print or electronically to the client as well. Which means in the end, mind mapping may be a way to improve the financial planning experience itself.
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How Do You Combat The (Too) Long Financial Planning Meeting?

nospam@example.com (Michael Kitces) — Mon, 30 Apr 2012 06:15:00 -0500

Financial planning can often involve some pretty long meetings, simply given the complexity of both the lives of our clients, and the solutions from which they must choose. Unfortunately, though, recent research shows that when we have to stay mentally focused for an extended period of time, it can actually lead directly to less effective decision making. Consequently, asking clients to make important decisions at the end of a long financial planning meeting - even one filled with great information and education - may actually be the worst way to lead the client to a well-thought-out decision, due to mental fatigue! Fortunately, though, there are solutions. Some planners may choose to adjust how meetings are structured, making the meetings shorter and/or presenting decision-making opportunities to clients earlier (before they are so mentally fatigued). Alternatively, it turns out that a remarkably effective solution is to actually refuel the brain, with some carbohydrates/sugars that bring the brain the glucose it needs to refresh itself. But in the end - whether it's a shorter meeting, a cookie, or some fruit juice - it's probably time for planners to pay more attention to the client's state of mind before moving to the decision-making phase of a financial planning meeting!

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The Latest Trend In How Advisors Are Using Social Media (With No Compliance Headaches!)

nospam@example.com (Michael Kitces) — Thu, 23 Feb 2012 10:16:00 -0600

As social media continues to take the world by storm, advisors are increasingly under pressure to begin using social media in their own practices. Yet the advisory community has generally been slow to adopt, due both to the compliance challenges involved, and a general wariness about whether prospective clients would really make a decision to trust and work with an advisor based on social media marketing. In fact, a recent study by the Aite Group suggested that "the bloom is off the rose" when it comes to advisors adopting social media to bring in new business. Yet at the same time, a new social media trend is emerging - using social media not to develop new clients, but to better communicate and interact with existing clients. And the good news is that this approach to social media potentially has far fewer compliance headaches, too, because it's less about talking, and more about listening.

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Have Financial Advisors Gotten Off Track With Client Vaults?

nospam@example.com (Michael Kitces) — Thu, 16 Feb 2012 08:30:00 -0600

Once upon a time, the purpose of a client vault was to use it like a vault. It would store important client documents to be accessible if/when needed. It was designed to be the digital equivalent of a safety deposit box in your local bank's vault. But at some point over the past several years, we began to shift, and the client vault became not only the place we store the files we access rarely, but the ones we access regularly. Advisors increasingly made it the centerpiece of their efforts to securely share files and collaborate with clients. Yet in reality, this is quite impractical. Just as you don't regularly go to your local bank vault to constantly move things in-and-out of your safety deposit box, so too do we need to stop using our digital data vault like a collaborate file sharing tool. Just as going regularly to your bank every time you need to check on something would be a huge hassle and a negative experience, so too is using the data vault as a collaboration tool a negative client experience. It's time for a better alternative.

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Your Clients Don’t Care THAT you do Financial Planning; It’s About WHY You Do It (Guest Post)

nospam@example.com (Michael Kitces) — Wed, 18 Jan 2012 20:48:00 -0600

In the early years of my career, I genuinely hated the concept of marketing. I had learned about the powers of persuasion in school. I was taught during an internship that the success rate of closing a client was x times greater if you can stir up emotions like fear and uncertainty. I understood the role of marketing in the world of widget makers as a way to introduce their commodity to the market, but struggled to reconcile the use of these forces when dealing with individuals and families, many of which have little to no education around money and investing.

In recent years, however, I have made a few discoveries that have completely reshaped my viewpoint on marketing. And while I may still not have all of this figured out, it has become painfully clear to me over the last several years that marketing our services and our value is something we, as a profession, are absolutely horrible at doing.

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Financial Planning Leaders Suggest The One Skill That Has The Biggest Impact On Success (Guest Post)

nospam@example.com (Michael Kitces) — Wed, 11 Jan 2012 09:21:00 -0600

What one skill (above all others), if you developed and did it in an excellent fashion, would have the biggest impact on you as a financial planner? This is the question that was posed to the leaders in the financial planning profession. Initially, the plan was to elicit feedback as to where to focus energy in the new year to become a better advisor, but after receiving so many excellent responses I wanted to share the common themes. What is the most important skill? There is always a big focus on the technical side of planning (which is obviously very important), but is it that the most important? Or is it empathy, communication, or relationship building? The answers varied by the leaders that responded, but the common theme was clearly that in the end, the interpersonal trumps the technical.
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The One Skill That Has The Biggest Impact On Being A Successful Financial Planner

nospam@example.com (Michael Kitces) — Tue, 27 Dec 2011 08:59:00 -0600

Developing your skillset as a financial planner is complex. From learning the financial planning body of knowledge itself, to the analytical skills to apply it to specific client situations, to the written and verbal skills necessary to communicate recommendations to clients, to the interpersonal skills required to actually motivate and support clients on implementing those action items, there's a lot to learn. Not to mention the skillset necessary to find and attract new prospects to become clients in the first place. But if there is one skill that seems to have a bigger impact above all else for the success of a financial planner, it's the ability to listen. To REALLY listen.
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Are We Being Too Forward With Our Clients?

nospam@example.com (Michael Kitces) — Wed, 29 Jun 2011 08:26:00 -0500

In the dating world, being "too forward" generally means trying to advance a relationship at a pace that is too fast for comfort; being too confident and direct in what is said, to a point that may not be socially acceptable. The general remedy in the dating world, then, is to "take it slow" and allow the relationship to build trust before trying to advance a relationship to the next stage. Of course, building a trusting relationship is not unique to the dating world; many of the exact same dynamics apply in building the planner-client relationship. Yet in practice, because financial planning relationships must move to an implementation stage after “relatively” few meetings, planners often must be very forward during the sensitive relationship-building phase. But how far is too far? Have you been asking your clients to get naked on the first date?

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Is Social Media A Tool For Deepening Client Relationships?

nospam@example.com (Michael Kitces) — Tue, 10 May 2011 18:17:10 -0500

As the popularity of social media rises - from Facebook to LinkedIn to Twitter - advisors are increasingly asking "what's all the buzz about" and "why should I care?" As many point out, planners develop new clients primarily by getting referrals from existing clients, and having face-to-face meetings to get to know them better. No one makes a decision about who to give their life savings to based on a Facebook page, right!? Perhaps, but a focus on the new business development opportunities from social media misses an important but crucial point - there's already plenty of value to be derived from social media, just by connecting to your EXISTING clients, to deepen the personal relationship you already have with them!
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It's Not Just About Telling Clients What To Do, It's About Motivating Them To Do It!

nospam@example.com (Michael Kitces) — Tue, 10 May 2011 08:58:35 -0500

Being a good financial planner is not just about having the knowledge and information to direct clients on how to best achieve their goals and financial success. Ultimately, most would agree that the true measure of success is to look at how effective the planner is in actually helping clients achieve those goals; in other words, does the client actually have an improved path to success because of the planner's involvement. In turn, this means that the planner's true success hinges not only upon having the right advice, but also depends upon the client actually implementing that advice, and the planner's ability help those clients make the required changes! There's just one problem: it turns out that telling people what to do is actually a terrible way to get them to do it!
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"Power Sleep" for Better Client Meetings - Dr. James Maas On The Nighttable

nospam@example.com (Michael Kitces) — Fri, 05 Nov 2010 05:01:01 -0500

Are you a "good" sleeper, able to fall asleep as soon as your head hits the pillow, or to take a nap at a moment's notice? As it turns out, if this describes you, it is almost certainly a sign that you are severely sleep deprived, to the point that it is adversely impacting your alertness in client meetings!

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The Toll of Market Uncertainty on the Financial Planner

nospam@example.com (Michael Kitces) — Mon, 18 Oct 2010 09:20:26 -0500

Any financial planner who has worked with a client through some "market turbulence" or an outright bear market is well aware of the stress that market uncertainty can bring to the client. But how often do we look at the stress that market uncertainty brings to the financial planner vis-a-vis the client relationship?

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