Executive Summary
For many financial planners, it’s increasingly difficult to get new clients. Those with a longer-term practice can at least rely on referrals from existing clients. For newer planners, though, it can be especially hard or even prohibitively expensive to find new clients, leading at best to a significant “income gap” in the early years of starting a new advisory firm.
Yet arguably, the process of matching a financial planner and a consumer isn’t necessarily much easier from the client’s perspective, either. The fact that consumers are regularly counseled to interview multiple advisors and ask them a dozen questions or more means there's a huge commitment of time and effort from consumers just to try to find an advisor. How many decide it’s easier to just find the answers to their questions themselves, than go through the hours it takes to find an advisor to answer them?
Similarly, planners themselves make the process even harder for prospective clients, as once the consumer finds a planner, it’s still not possible to just get the desired advice! Next comes an extensive data gathering and discovery process – all the more onerous for those who most need the help, who may not be organized enough to provide the requisite information! And once all that is done, the planner often still insists in going through a comprehensive financial planning solution, and is unwilling to “just” answer a new client’s specific and finite financial planning questions!
The end result of these challenges is that while it’s hard for advisors to find clients, perhaps the real issue is that we’ve made it too hard for consumers to find their way to us and work with us to efficiently get their own questions answered. How might financial planning be changed if the goal, truly, was to make it as easy as possible to become a client?
Too Many Questions To Ask - The Difficulty Of Finding A “Good” Financial Advisor
Although there seems to be no shortage of people who call themselves a “financial advisor”, the fact that there are such a wide range of people using the label – from actual advisors to insurance and investment salespeople – makes it quite difficult for consumers to actually find and identify a good one. After all, the reality is that anyone can be an “advisor” with a high school diploma and a three-hour regulatory exam – and the high school degree is optional! (Not to mention the lack of any requirement for a single iota of post-secondary education about personal finance before being paid to give advice about it!)
Accordingly, Investopedia offers up a list of 5 questions to ask before hiring a financial advisor; the CFP Board provides a list of 10 key questions; and an article from Marketwatch tops out at a whopping 25 questions for a potential financial advisor! In other words, finding a financial advisor requires a significant amount of due diligence on the part of consumers just to figure out who to work with!
And of course, not only is there a long list of questions to ask, but then the consumer has to interview lots of separate advisors in order to find the one with the “right” answers to all those questions! And even then, consumers may be uncertain about which advisors to contact to go through the advisor-interview process, since advisors so rarely put on their website the details of their pricing, nor their target clientele or minimums, so a prospective client doesn’t even know whether he/she will “qualify” for the advisor or be able to afford his/her services in the first place!
The end result is that for a consumer who wants to find a financial advisor, the process could entail 3-5 meetings (or more!) with various advisors, plus additional time searching for advisors online or asking for referrals just to narrow the list to those few. Or viewed another way, the “time saving” and “peace of mind” process of working with a financial expert may start with a stressful 10-20 hour process just to find a good one to begin with!
The Challenge Of Getting Organized Enough To Start Working With A Financial Planner
Unfortunately, even after the arduous process of finding an advisor, a consumer in need still doesn’t actually get any financial advice. Next comes the “discovery” process for the financial planner to get the financial details from the client, and learn about and understand the client’s situation.
Accordingly, the prospective client must now gather together all of his/her/their financial information to provide to the advisor – another process that may be quite challenging and time consuming unto itself, as not everyone has all of their financial documents and papers in good order to begin with! In fact, arguably it’s likely that those most in need of financial guidance may be seeking assistance because their financial house is not already in good order! As a result, if helping clients sort through their financial information and get organized is not part of the advisor’s service offering already, for a prospective client to just “get started” with an advisor may require the client to spend hours more time just getting organized enough to begin the process in the first place!
Even beyond the challenge of getting through the hard data and financial information, there’s also the softer side of the “discovery” process with a financial planner – where a prospective client is often asked a long series of questions about their financial difficulties, and the problems that bring them into the advisor’s office. From the advisor’s perspective, these are questions that need to be asked at some point – it’s "not possible" for the advisor to help without knowing all the details of the situation.
Yet from the client’s perspective, the reality is that such deep and personal questions in the very first meeting may feel awkward, or outright embarrassing; after all, money is perhaps the last great taboo subject of conversation, and those in search of financial guidance are perhaps even more likely to have a problematic relationship with/around their money, and/or have already committed a series of money mistakes that they are loathe to share and confess (and acknowledge for themselves!).
Ultimately, that doesn’t necessarily mean the conversation should be avoided, but it’s important to recognize the sheer level of discomfort or even outright embarrassment a prospective client may feel in the first meeting – or fear in advance, if he/she knows the conversation is coming. In point of fact, one has to wonder how often a prospective client never follows through with getting financial planning at all, simply out of the fear of discomfort in being forced to face their prior financial mistakes?!
Comprehensive Financial Planning Solutions To Modular Problems?
Sadly, even after finding an advisor, and getting organized enough to provide the necessary data and information to the advisor, most consumers still don’t actually get the answers to their financial questions. Because the solutions can’t be given until the financial planner takes the client through the entire comprehensive financial planning process.
Yet the truth is that it’s a rare day indeed that anyone wakes up at 2AM in a cold sweat thinking “I’ve just got to get myself a comprehensive personal financial plan.” While financial planning is on the rise, as the number of CFP certificants has doubled since the early 2000s, the reality is that most people don’t actually seek out a comprehensive plan, per se; the trigger for the search for a financial advisor is more commonly to solve a particular financial issue that has arisen, a pain point for which the prospective client is searching for a finite, specific answer.
Yet unfortunately, in practice it’s remarkably difficult to find a financial planner who will provide such “modular” topic-specific advice (with just a few notable exceptions like the Garrett Planning Network or some advisors in the XY Planning Network). Instead, even when a potential client comes in with a particular problem to solve, most financial planners will suggest that the solution is to do a comprehensive financial plan to cover everything! This is done both to ensure that the client’s specific challenge is viewed in the proper context of their entire financial picture, and also to verify there aren’t any other issues lurking beneath the surface that need to be addressed as well.
While it’s hard to argue with the virtue of being a thorough professional, it’s important to view the situation once again from the consumer’s perspective. The person who just has a specific problem to solve or issue to address – Can I afford to retire? When should I start my Social Security? What’s the best way to save for my daughter’s college education? How should I allocate my 401(k)? – can’t get a straightforward answer to a relatively straightforward question! In other words, planners tend to sell comprehensive solutions even though most consumers have more “modular” financial planning problems. Perhaps because as advisors we have a natural business bias to make everything seem big and complex, to justify our own value proposition?
As a result, though, a question the consumer might have hoped would just be answered directly in the first meeting – having gone through all the time and effort to find a financial planner, and get organized enough to get started in the first place – instead turns into a multi-meeting comprehensive planning process! Once again, what ‘ideally’ should be a simple process of going in to a professional for some advice, turns into a more complex process with a significant amount of additional time, potential hassle, and cost!
How Do We Make The Steps To Hire And Engage With A Financial Planner Easier?
So given all of these challenges from the consumer’s perspective to engage a financial planner and get financial advice, what can be done to make the process easier for consumers?
Lifting Minimum Standards For Advisors - Fiduciary Loyalty And Competency
First and foremost, the challenges of even finding and figuring out who is a “good” financial advisor are clearly exacerbated by the fact that the industry’s standards are so low; not only is there little actual training in personal financial advice required to call oneself a financial advisor, but due to the SEC’s ongoing under-enforcement of the Investment Advisers Act of 1940, both salespeople and advisors all use the same titles and hold out to the public in the same manner, creating even more confusion about how to distinguish good (or real) advisors from the rest.
Thus, from the consumer perspective, the importance of the ongoing debate about the fiduciary standard is not just about holding advisors accountable for giving advice in the client’s best interests, but also about lifting up the minimum competency standards to make it easier to find a properly trained and educated advisor in the first place. In other words, with higher standards, there are fewer questionable advisors, and the due diligence list of “Questions To Ask A Potential Financial Advisor” gets shorter, making the process easier for consumers (which potentially lowers the cost of financial advice!).
Similarly, it’s notable that in the context of other professions serving a wide range of complex needs, the professionals eventually begin to specialize. From the consumer perspective, this makes it even easier to find the right professional with the right expertise – if you have a heart problem you find a cardiologist, if you have a foot problem you find a podiatrist, if you need to get a patent you contact an intellectual property lawyer, if you’re hurt in a car accident you find a personal injury attorney, etc. By contrast, in the world of financial planners, almost everyone is a “generalist”, which makes it even harder for consumers to match themselves to the right advisor with the right expertise; alternatively, as advisors find their way into a niche, it becomes not only easier to differentiate from the competition, but also easier for clients to find their way to the (right) advisor!
Easing The Data Gathering And Discovery Process
Beyond broad-based industry reforms to the standards of advice that would make it easier to find an advisor, there’s also much that individual advisors can potentially do to ease the process of data gathering and client discovery for potential new client as well.
For instance, if the reality is that many clients aren’t necessarily financially organized already – and thus why they are seeking help – then instead of requiring them to complete a data gathering form and get themselves organized just to work with you, make the data gathering meeting itself into a “Get Organized” meeting for the client! For instance, a new client might receive the following message before the first meeting:
In order to move forward with your financial plan, we need to understand the details of your financial life. However, we realize that like most people, your financial life probably isn't in perfect order already. Statements end out buried in drawers and at the bottom of piles. Insurance policies are buried who-knows-where. Sometimes we even lose track of old accounts.
So at our next meeting, we're going to work together to help you get organized. Please bring with you whatever financial information you can put your hands on; if you just want to bring in a box of files or piles of paper, that's absolutely fine, we'll work with you to sort through it.
By the end of the meeting, though, our goal is to help you be on your way to getting your financial information in good order, and giving you a system to keep things organized in the future. And along the way, we'll gather the details we need to take your financial plan to the next stage.
Similarly, recognizing that a prospective new client may be uncomfortable about divulging a significant amount of personal information at the first meeting – not to mention the potential to feel judged for past financial mistakes – another communication to a prospective client’s first meeting might include:
As we begin our process of working together, we’re going to ask you a lot of questions. It’s not to be intrusive, but simply because it’s crucial for us to understand you and your entire situation to provide the right advice. If you don’t know the answer to a question, that’s ok; we’ll figure out the answer together.
As a part of our conversation, it may also come up that there are some past financial decisions you’ve made that you regret, but recognize that we are not here to judge you, and our purpose is not to dwell in the past. We’ve all made mistakes from time to time, and then we move forward. Our goal is simply to understand where you’ve been, so we can help you get to where you want to be in the future.
Ultimately, the whole point is simply to make it as easy and comfortable as possible for a new client to begin to work with you as a financial planner, and not feel intimidated or overwhelmed by the process, or ashamed that they don’t have all the data answers to the advisor’s questions in the first place!
Are Financial Planners Too Comprehensive?
While it’s true that a reasonable amount of background information is necessary for any professional to render advice, arguably financial planning – or at least, most financial planners – may be “too” comprehensive in today’s environment.
After all, even in the world of medicine, doctors recognize that while it’s important to take a proper patient history and order diagnostic tests from time to time, not every diagnostic test and analysis is needed for every possible patient situation. The scope of data gathering and analysis is still reasonable limited to the context of the situation – thus why we don’t have a blood analysis done just to set a broken leg, nor do we need a colonoscopy before getting a flu shot.
By contrast, financial planning today is often lacking in such limited-scope engagements on modular financial planning issues – and that may be part of the problem. If a doctor ordered 20 diagnostic tests just to evaluate whether you have strep throat, we’d rightly reject the excessive cost and hassle of going through such a process; yet in the financial planning context, we still too-often insist on the same broad-scope comprehensive financial plan (comprehensive diagnostics at the beginning of the process) for every client. Even though the reality is that we probably don’t really need to see a copy of their Will to recommend a college funding strategy, or to review their tax return to recommend an asset allocation for a 401(k) plan.
So what’s the alternative? It’s simply to recognize that many consumers are really just interested in a limited scope engagement – at least to start, and meet them at their current needs. While there’s no reason that an ongoing series of modular planning engagements couldn’t ultimately lead to a comprehensive relationship – and getting paid for modular services while building towards a comprehensive solution effectively becomes a form of getting paid to “market” comprehensive financial planning! – offering simpler, more ‘bite-sized’ services to consumers makes it easier for them to initially engage. In other words, by making financial planning “comprehensive or nothing at all”, a large number of consumers may be choosing the “nothing” option because the stakes (in terms of both cost and time/effort commitment) are just too high to begin with a comprehensive solution right out of the gate. Alternatively, by breaking financial planning down into more manageable pieces, it’s easier for consumers to engage.
The bottom line, though, is simply this: what may seem like “typical” or even “best” practices from the advisor’s perspective – like requiring clients to complete data gathering forms up front, insisting that they go through a comprehensive planning process, and making yourself to a wide range of potential clients to have a wide marketing net – may actually be making it harder and harder for consumers to actually get financial planning services. In fact, when you look at it from the consumer’s perspective, it’s not hard to see why the mass market has been slow to adopt or see the value in financial planning – we make it surprisingly hard for them to engage the service in the first place!
So what do you think? Have we made it too hard to engage a financial planning, forcing clients to spend too much time searching for an advisor and asking a huge number of questions? Should we be trying to find a way to make the process easier for clients? Are you considering whether to do anything differently with your new clients going forward to 'ease' the process for them?
unless the planner is knowledgeable and experienced, the questions asked will only be ‘surface” questions for fear of asking for information that might bring questions the planner can’t answer. Further, asking for information about life insurance unless one is familiar with all the nuances of life insurance will keep this discussion brief. Many good ideas and strategies are never illuminated because the planned just doesn’t have enough time in the saddle and for these reasons, many planners use simple programs and the client finds out later that there is more to the story.
Michael: I view our role not unlike a general practitioner’s; the financial “patient” doesn’t always know what areas are in need of assistance/cure. The questionnaire (the patient’s chart) and a good exam–initial meeting are essential to us performing “triage”. Often clients come in thinking they need to focus on Roth conversions or investments and what they really need is cash flow planning or proper insurance put in place. It is our role to educate them that finance is not just all about investments.
Selecting a financial planner is like selecting a CPA or tax preparer. People have lists of questions to ask but they need to know that the questions are the right questions. The only way to intelligently decide on a professional is to be conversant on the subject. In so doing, they are able to make the most basic decisions; then the can determine if a prospective professional knows more than themselves. That’s the way I look at it anyway.
Educating potential clients, then, may be the first step to getting those clients.
I think we will also find advisers’ fear of being challenged by a regulator or a claim against poor advice as a reason for such a comprehensive approach. Advising is a risky business and firms will feel they need to protect themselves.
I agree though with much of what you say and marketing ourselves in specialist areas does make great sense. That said, I would probably still choose to deliver a comprehensive lifestyle financial planning solution because that’s what I believe in.
I found all my best clients because I was able to help them initially with a specific problem. After a relationship was established I was gradually able to introduce more comprehensive planning. The “generalist” idea can be great once you have an established client but it doesn’t help at all when prospecting new ones.
Using the medical reference. If you save someone from a heart attack or fix their back pain isn’t it a little easier to move the conversation to now let’s take a look at your general health. As a generalist you are saying let’s both invest a great deal of time to discover problems you didn’t know you had.
I don’t like being interviewed clients. Most of the time they ask the wrong questions and there isn’t enough time to educate them. Even when successful I never felt loyalty from them. It is so much easier to say let me help you solve this problem… and now let’s see what else I can help you with.
Michael: I agree with most of what you’re stating in this article. That’s why our firm is very transparent in what we do, who we serve best and what our costs are. This is all clearly laid out on our website so prospective clients know exactly what our firm is about. (This also cuts down on our marketing costs and prospecting time wasted). While we do do modular type of advising, I still feel some level of
comprehensive planning is most valuable to clients, especially asking a question like “Can I retire?” since this is not exactly a “simple” question. However, we try to meet clients where they are. Fixing something is better than letting them go with nothing just because they won’t do a comprehensive plan right now. In addition, the modular work more often than not leads to more comprehensive planning eventually.
And while I definitely think advisors can make the process easier, you can ultimately only help those clients who truly want to help themselves. If they can’t face their prior mistakes or don’t want to put time and effort into the process, then they won’t be willing to be make the changes you would advice anyways.
Michael, I think your “questioning of questioning” has more relevance depending on which stage of life a prospect is in. For example, a young, single person with no dependents may not be a strong candidate for comprehensive financial planning. In this stage of life there usually are not a lot of questions to ask. The prospect’s primary needs are to have a positive cash flow so that they can build an emergency fund and start a long term investment program. I sure wish someone had made it easy for me to understand the importance of this when I was young!
The challenge is how to make this endeavor simple for the prospect to understand and implement, while also making it a worthwhile for the planner. We have teamed up with robo-advisor Betterment to see if this can be mutually beneficial.
But for those who are soon-to-be or already are parents, that is the time we feel a person needs a comprehensive financial plan, and thereafter on-going planning, and investment management. Our clients rely heavily on us, which is good, but time-consuming. Consequently, it is important that we make sure that the both of us are compatible, i.e. we need the right fit since we can only properly serve a certain number of clients. Our best opportunity to ensure we have the correct fit is to find out upfront.
As part of this fit, our feeling is that if a prospect cannot pull together a few documents for our first meeting, e.g. tax return, copies of investment accounts, any previous planning, then we would rather not work with them. We get a lot of satisfaction helping clients reach their goals, as well as avoid pitfalls. But if the client is uncooperative and unwilling do their part it will not be a very fruitful relationship for either of us.
You raise some great points, Michael. The comprehensive character of a financial plan may be daunting to the client, but I find it difficult to provide competent advice without a fairly complete understanding of a client’s full financial picture and their goals. I am the general practitioner and think I am smart enough to refer clients to insurance professionals, investment professionals (I use a third party), attorneys, etc. When they go to those professionals they know what they are seeking; we’ve already worked that out. It saves them money and time and is much more apt to provide what they really need.
I don’t start with a huge “data dump”, but I do ask for certain information about various accounts, policies, etc and ultimately there will be a Cash Flow model developed unless they just have plenty of money and can hit all their goals without cash management. I have found few clients, even wealthy ones, who have it so well under control. Usually the wealthier clients have costlier goals that require the detailed management to get them to their destination. I recently discussed the process with a new potential client who said his goal was to accumulate and invest $300,000. I asked him how he came up with the number and what its purpose was and he said that he just thought it was a good number to shoot for but that he had no purpose in mind. He ended up going to an investment advisor who was glad to take his assets and try to grow them. I would not have been happy working with him. Somehow, as a planner, I want to plan. I have turned away more than one client who “wanted to get rich”.
As for the interview process, perhaps we could answer the 12 Questions with a white paper available on the web site to save the client and us time. Most that I’ve processed come equipped with those questions; I smile and answer as if it is new thinking.