Articles About Client Trust & Communication

One of the most interesting aspects of being a financial advisor is the ability to gain insight into all sorts of different areas of clients’ lives. Far from the domains of “just” insurance and/or investments in the early stages of the industry, today, a true advisor helps define goals and aspirations, identify challenges, take advantage of opportunities, and optimize the accumulation and distribution of assets.

In fact, a favorite industry analogy is that a financial advisor acts as a sort of “quarterback” for their clients, giving impartial and helpful advice and acting as a trusted intermediary for a wide variety of relationships and interactions. And in order to provide the best advice and service to clients, advisors often gain, at the minimum, a working knowledge of a number of areas that fall outside the realm of traditional finance, including tax and legal issues.

Unfortunately, however, that disciplinary overlap has the potential to create interprofessional conflict, particularly when a client’s accountant or attorney might not be giving them the best advice possible, or worse, is simply wrong. Which in turn, raises the question: How do you, as a financial advisor, tell your client that their CPA or attorney is wrong?

In this week’s #OfficeHours with @MichaelKitces, my weekly broadcast via Periscope and guest hosted this week by Jeff Levine, we discuss potential pitfalls when addressing the issue of a client getting incorrect advice from another professional, specific steps to take in such a situation, and ways to ensure a positive outcome for everyone involved.

Because, even though you’re not trying to make anyone look bad, there are all sorts of problems that might arise if you don’t handle the situation properly, including: running into compliance issues by providing “legal or tax advice”; offending the accountant or attorney, because, after all, they’re the licensed experts in their respective field, not you; and, upsetting your client, since they might feel you’re calling into question the trust they’ve placed in their CPA or lawyer.

The question then is: How do you handle such a situation? Often it’s best to follow a three-step process, where the first step is to reach out to the professional in private and, while deferring to their expertise, indicate that there may be a misunderstanding or some miscommunication regarding the issue at hand. Next, refer to an outside source, preferably a thought leader, or notable expert in their field (i.e. a well-known attorney if you’re talking to an attorney, or a well-known CPA if you’re reaching out to a CPA – people tend to respond better from “advice” from their own profession) as the catalyst reaching out, and finally (and this is key), asking them for their thoughts, because (again) it’s important to defer to their expertise.

Because, ultimately, doing what’s best for the client sometimes require Solomonic tact, and ensuring that everyone involved saves face is the easiest way to do that. And, as an added bonus, you then might even have an opportunity to develop a new relationship with a center of influence after helping them navigate a potentially problematic situation.

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One of the biggest challenges we consistently face as financial advisors when creating a financial plan for clients is simply getting the data we need to actually do the plan in the first place. Because, without any information to enter into the financial planning software to begin with, it’s impossible to assess a client’s financial situation, show them the consequences of various trade-offs, and ultimately make our recommendations. Yet while for at least some clients, the problem with getting data is that they literally don’t know their own financial details in the first place – thus their need to hire a financial planner! – more often, the real issue is that the client doesn’t actually understand why they need to provide the data in the first place, and what they’re going to get out of the process.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we discuss why it’s not enough to just make the data gathering process mechanically easier for clients (e.g., with online data gathering forms instead of manually entering data into a printed data sheet), and why creating a Sample Financial Plan for prospective and new clients is an essential step in building enough trust with clients that they’re willing to gather and comfortable in sharing their financial information with you in the first place.

Historically, getting clients to complete data gathering forms has been a challenge simply because it’s tedious and time-consuming to fill out a paper form. And the situation is even worse for those who most need financial planning – because their financial lives are currently so disorganized – as the disorganization that makes them want financial planning is also the disorganization that means they don’t even know (and potentially don’t even know where to find) their own data to enter into a form in the first place!

Fortunately, as we move towards a more integrated digital age, the difficulty in obtaining financial planning data in the first place will be mitigated by account aggregation tools. Instead of manually entering information into a form, in the future all clients will have to do is link their accounts to their advisor’s portal, which will then automatically download the pertinent data into the planning software!

Still, even though some of these automations are starting to come online, a client’s hesitation to share their personal financial data often has less to do with the time involved, and more to do with the trust that clients need to feel – in the advisor themselves, and the value of the advisor’s process – before they allow an outsider to have a peek into their personal financial lives.

Because in a world where one of the biggest challenges financial advisors face – besides actually finding prospective clients in the first place – is demonstrating the real value of an intangible financial planning service, one of the most effective ways to get buy-in from new clients is to actually show them a Sample Financial Plan of exactly what they’ll get, and tangibly prove why it’s worthwhile.  As even though the real value of what financial planners deliver is the actual process of defining goals, getting clients organized, and delivering advice, that sample financial plan is often the one and only tangible deliverable that clients can see to judge the value of the process.

The bottom line, though, is simply that if you are struggling as an advisor to get clients to share their financial information with you (whether via a data gathering form, or account aggregation), or are having trouble even getting prospective clients to sign on with you in the first place, it implicitly suggests that clients are just not seeing the value that you say you bring to the table. Because, even though we know that the financial planning process is worth it, ultimately, the onus is on us to show our clients that investing their dollars, time, and trust in your services is justified. For which the starting point is to create a Sample Financial Plan to really show clients the relevant value you can bring to them!

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For an advice-giver, the “ideal” client is one who presents a clear fact pattern to analyze, for which there is a single straightforward recommendation to implement, that the client immediately takes up and follows through on. In the real world, most clients are more complex, and entail a long series of recommendations to implement over time… which means, at best, even the most diligent clients won’t necessarily follow through on everything right away. And for many, over time, it can become even harder to finish all the implementation steps, as other demands and distractions of life sap the client’s focus and motivation.

Yet the growing base of research on “non-compliance” (or at least, “non-adherence”) to advice-givers in the medical world (i.e., patients who don’t follow their doctor’s advice and prescriptions) reveals that the burden for following through on implementation should not rest solely with the patient or client receiving the advice. Instead, the reality is that the advice-giver also has a role to play, and a shared responsibility to ensure that the advice they give actually “sticks.”

And in her recent book of that name – “Advice That Sticks” – neuropsychologist Dr. Moira Somers explores how the adherence research on advice can be applied to the world of financial advisors to actually increase the likelihood that clients really do follow through on all of their recommendations.

The first key insight of the research is that clients hire financial advisors for a wide range of reasons – far beyond “just” seeking out answers to their financial questions. In fact, given the ever-growing depth and reach of the internet, clients are arguably less and less likely to be seeking answers and expertise alone. Instead, they may be seeking someone to help them make sense of all the information, to reduce complexity or help them evaluate trade-offs, or increase their confidence about their own decisions. In other cases, the client may actually be hoping to delegate something – not just the responsibility for managing their assets, but the “unpleasantness” of spending time in an area they don’t relish, to have someone (else) to blame if things go wrong, or simply to free up their own time for other endeavors.

And in addition to the fact that clients come to advisors for more than “just” advice alone, Somers highlights the wide range of additional influences that can impact the client’s receptivity to advice, from their own personal financial history and circumstances (and the “money scripts” they’ve learned from prior experiences), to their social and environment factors (where they may not be prepared to face the family consequences of a financial decision), to the nature of the advice itself (long-term preventative advice is the hardest to implement in the first place), and how the advisor’s own advice-delivery process can impact the outcomes.

Ultimately, though, the key point is simply to understand that clients who don’t implement the advice they’re given aren’t necessarily “bad clients” for failing to do so. Instead, the advice-giver themselves has a proactive role to play in aiding clients to follow-through and implement, and in reality the client who faithfully and fully implements all their advice the first time and never needs help on follow-through again is not the paragon of being a good client but more the exception to the rule for how most people actually struggle to implement even good advice. On the plus side, though, that means there is tremendous additional value to be created for clients by not just giving the most accurate good advice, but actually being the best at giving advice that sticks, too.

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Historically, getting paid for financial planning – not just to implement the recommendations, but for "The Plan" itself – meant producing a voluminous physical financial plan for which the advisor would be paid. The Plan was the tangible, physical deliverable, full of in-depth analyses and culminating in the advisor’s recommendations, that substantiates the financial planning fee. The one major caveat: few clients ever actually open The Plan again after it is first presented, focusing only on the subsequent recommendations and action items… and raising the question of whether financial planning might be done far more efficiently by eschewing The Plan and just delivering a One Page Financial Plan (of core recommendations and action items) instead.

Yet the reality is that even if The Plan is never revisited by the client after the day it’s presented, that doesn’t mean it was useless to have created it in the first place. Because from the client’s perspective, The Plan is what helps to validate that the subsequent recommendations are right and to be trusted in the first place; in other words, the client may in the end focus on just the recommendations and not The Plan, but that doesn’t mean they would have trusted and acted on those recommendations in the absence of the supporting comprehensive financial plan analyses and output.

Similarly, the real challenge for many clients is not figuring out the appropriate recommendations for them to achieve the goals in their financial plan, but to identify what their goals should be – or can be, or are even possible – in the first place. Which means producing The Plan, and subsequent What-If scenarios for the plan, are an essential element of the planning process in the first place. And again something that cannot be eschewed by just focusing on the One Page Financial Plan of recommendations at the end.

Notably, this doesn’t necessarily mean that financial advisors should or need to continue producing comprehensive financial plans exactly as they have in the past. The more the advisor can establish their trust and credibility – whether through showing empathy to create rapport with the client, demonstrating good communication skills, or simply their years of experience – the less the client may rely on the advisor’s analytical plan output. And to the extent planning software can be used more interactively and collaboratively with the client, the less it’s necessary to print out the voluminous plan in the first place.

Nonetheless, the challenge remains that even if the goal of the financial advisor is not just to get paid for The Plan, but for the advisor’s own financial planning knowledge and wisdom… it’s still necessary to go through the financial planning process in crafting recommendations for clients, if only because that’s what it takes for the client to have the buy-in and trust necessary to actually follow through and implement them!

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As social media usage continues to grow amongst financial advisors and their prospective clients, advisors are growing increasingly interested in whether spending money on social media advertising can provide a good return on investment to amplify their digital marketing results. Because, as I've learned myself through many years of testing and experimenting with social media, while it can be a powerful tool, it can also be easy to waste money if not done properly.

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore how financial advisors can use digital marketing and social media to grow their business, and particularly why it's important to have a clear understanding of what you are trying to accomplish in the first place (e.g., awareness, engagement, or acquisition) in order to get a good ROI on social media and other digital advertising!

When it comes to potentially spending on social media advertising, the first question to consider is what, exactly, you’re trying to accomplish. Because the reality is that digital marketing, like any kind of marketing, is actually a multi-step three-phase process: Awareness, Engagement, and Acquisition. The Awareness phase is simply about making people aware that your business exists in the first place. The people you reach are not necessarily ready to do business with you, but you want to make them aware that you exist. The Engagement phase is where you try to actually help a prospective client begin to know, like, and trust you... because as the famous saying in the marketing world goes, people need to engage with your brand 7 to 9 times before they’ll be ready to do business with you! The Acquisition phase is where you actually try and acquire a client, where you transition from marketing into the sales process, because the prospect is ready to do business, is interested in doing business with you... and now you just have to convince them to actually take that action.

These phases (Awareness, Engagement, and Acquisition) matter in a social media context, because they influence what you are trying to do through social media in the first place. For instance, if you broadcast useful content on Twitter or via Facebook, its very effective for building awareness, so it may make sense to spend some dollars to try to further build your audience. Particularly on Facebook – with their ad tools specifically built to help you target people who are not already following your page but would likely be interested in learning more about you with.

However, building awareness alone isn’t enough to actually get new clients, and no one will ask you to manage their life savings based on even the wittiest of 280-character tweets. You actually have to engage prospects in order to get them to know, like, and trust you enough to want to do business with you. On social media, engagement means doing something that prompts people to take a further action, from running a TweetChat on Twitter or asking a provocative question to stir conversation on Facebook... but the key is that you have to get them to do something. Which you might then pay to promote (e.g., a particularly popular tweet, a Facebook article or survey that you pay to boost), though these still aren’t necessarily big ad spends, because you may only be spending to promote to the audience you've already built.

The third part of the funnel is acquisition, where a different set of strategies are relevant. This is the domain where very targeted ads, that really invite people to actually hire you and do business with you, can work. But this still doesn't mean just plastering ads out for the whole world to see. Your targeted messages should go to the people who are already engaged with you... such as paying to target a particular offer or invitation to do business with you sent to the already-engaged audience that has 'Liked' your Facebook page. But it's not about asking people to 'Like' your Facebook page at this stage; you're paying to an offer in front of them to take a next step towards actually becoming a client of yours!

Ultimately, though, the key point is to recognize that any digital marketing advertising you do has to align with what you're trying to accomplish. There are lots of strategies which may or may not be effective – from keywords and organic search, to SEO and retargeting (all discussed in greater depth in today's Office Hours below) – but the key is that you need to do more than just throw ads out into social media. Digital advertising can work great, but it's almost never about sending out a magic ad or Tweet. You need to build awareness, find ways to engage your audience, and then prompt them to take action that allows you to acquire them as a client. If you don't have a well thought out process, digital advertising will likely not provide the return on investment that you want!

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In the past, financial advisors encountered many prospective clients who were either previous do-it-yourselfers who didn’t already have an advisor, or individuals who had just gone through a “wealth creation” event like selling a business or retiring and getting a lump sum rollover from their pension. Which means they didn't already have an advisor. Increasingly, however, financial advisors are encountering prospects who already have a relationship with another financial advisor. And this distinction between working with prospects who already have an advisor and those who do not is important, because the dynamics of winning a new client away from an existing advisor are different than just winning a new client who has never worked with an advisor before!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we explore why it is difficult for some prospective clients to fire an existing financial advisor (even when that advisor is not doing a good job), and what financial advisors can do to help prospective clients prepare themselves to switch away from an existing financial advisor!

Many financial advisors have had the experience of talking to a prospect who was not being served well by their existing advisor (or “advisor” who was actually just a product salesperson selling them a bunch of stuff that may not have even been very good for them in the first place), where the prospect says they want to work with you, but then, at the last minute, decides to stay with the former advisor or broker after all. Oftentimes these prospects may abruptly cancel meetings, start to communicate sporadically through only email or voicemail, or simply just stop communicating at all. Unfortunately, in many of these cases, it is likely that the prospect is struggling with how hard it is for most people to “fire” their former advisor. After all, this is a relationship business, and most people don’t like to terminate relationships and fire people they have a relationship with (regardless of whether it was the healthiest relationship to begin with). The key point: we often underestimate how uncomfortable it will be for prospects to fire former advisors, and, as a result, don't do anything to help prepare these prospects for such potentially difficult conversations.

So what should financial advisors do about this? First and foremost, if you’re talking to a prospective client who is going to be leaving a soon-to-be-former advisor or broker to come work with you, then you have to prepare them for that conversation. One approach is just to say, “I’m so glad you’ve agreed to work with us, and we’re excited to start working with you. But I need to warn you that when you tell your former advisor you’re leaving, he’s going to try to keep your business and win you back. Have you given any thought to how you’re going to handle that situation?” And let the prospect talk through the challenge. Additionally, financial advisors may want to help clients think through scenarios such as what the client would do if the existing advisor offering to cut his or her fees to retain the client.

Because the reality is that by merely getting the client to talk through these scenarios (even without the advisor providing recommendations, which the prospective client could see as biased anyway), an advisor can still help a client better prepare themselves for that conversation. And, as a result, the client may be less likely to get caught off guard by an aggressive advisor who tries to retain their business (even after not serving them well in the first place), and less likely to be tempted to back down. Alternatively, prospective clients may even decide that it's best to start the transfers or the new financial planning process with the new advisor now so that they don't even have to confront the soon-to-be-former advisor, who will only learn once the money leaves.

Ultimately, though, the key point is to recognize that there is a real challenge and pressure that clients feel, in the moment, when they have to break the news to a soon-to-be-former advisor that he or she is being fired and the relationship is being terminated. Which means anything you can do to help them prepare in advance, even if it’s just to point out that it will be a challenge and invite them to think through how they’ll handle it – can make a big difference in bolstering their courage and confidence to actually do it, terminate their former advisor, and follow through on hiring you, when the time comes!

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For financial advisors who pride ourselves on the quality of the advice we provide to clients, it can sometimes be easy to lose sight of the importance of the more physical elements of our business that seem qualitatively irrelevant to the value of the guidance and recommendations we give to clients. However, as a tremendous amount of psychological research suggests, we should be careful not to overlook the more "theatrical" elements of a financial planning meeting – from the clothes we wear and the way we present information to clients, to the design and set up of our office – as the "theater" of financial planning actually does influence our clients, and their ability to implement our advice in a meaningful manner.

In this guest post, Dr. Derek Tharp – a Kitces.com Researcher, and a recent Ph.D. graduate from the financial planning program at Kansas State University – examines why it is important to both acknowledge and manage the theater of financial planning, particularly given the ways in which clients and prospective clients utilize the signals we as advisors send (both consciously and unconsciously) to decide everything from whom to hire, to what financial recommendations they should implement (or not!).

It is widely acknowledged that effective communication is an important aspect of what financial advisors do. However, something that is less commonly appreciated is the role that our environment plays in facilitating that communication. In his book, Suggestible You, Erik Vance examines the ways in which our suggestible minds are influenced by the stories we hear and the environments we hear those stories in. In particular, Vance examines the "theater of medicine", and its surprisingly powerful role in shaping the perceptions and beliefs of patients, which can, in turn, influence their physical health and well-being as well!

Additionally, the physical spaces we occupy (such as our office) can actually say a lot about us. Though laboratory research in financial planning is still very young, and scholars are only beginning to delve into how the offices of financial advisors can optimally be designed, some research from other fields has found that our physical environments can actually say even more about our personalities than some commonly used tools and assessments. At the heart of this are ways in which our personality manifests in certain behaviors which leave physical evidence within our environments that is really hard to fake – from mementos we collect and things intentionally place out for others to see, to more subtle clues such as the way we dress and organize things on our desk.

Ultimately, financial advisors have many options for trying to better manage the theater of financial planning... from sending signals of our conscientiousness through our clothing (e.g., formal dress) and communication style (e.g., controlled posture and calm speech), to signals of our competence through education and professional designations (e.g., CFP certification), and even signaling our knowledge of and solidarity with niche communities that we service... there are many ways in which we can seek to manage the "theater" of our financial planning to help our clients adopt and implement wise financial planning practices!

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The conventional wisdom amongst financial advisors is that the best place to talk about advisory fees and minimums is face-to-face with prospective clients, who are told "Come in for an introductory meeting and 'we'll talk' about the cost to work together." Doing so allows the financial advisor the opportunity to explain the nature of what he/she does, and the value of their services, to provide better context regarding their costs. And, if necessary, allows the advisor to make an on-the-spot decision about whether to grant a prospective client an exception when it comes to their fees or minimums. Except as it turns out, that also may be the biggest drawback to waiting until the first prospect meeting to discuss advisory fees and minimums, and can actually put us in situations where we make 'business' decisions we ultimately regret!

In this week’s #OfficeHours with @MichaelKitces, my Tuesday 1PM EST broadcast via Periscope, we look at why it is important to put your advisory firm fees and minimums on your website up front, including why it makes you more referable, helps screen out non-qualified prospects, and can protect us from ourselves when it comes to making fee and minimum concessions just to get (bad-fit) clients!

The first issue with not publishing your advisory fees and minimums, though, is simply what it communicates to the client. After all, the RIA that doesn't publish their fee schedule online is effectively saying: “We believe in fiduciary transparency. That’s why we won’t tell up front what we charge.” And the reality is that, when it comes to RIAs in particular, our fees are already publicly available through the SEC's Investment Adviser Public Disclosure website anyway! Which makes advisory firms seems as though they have something they're trying to hide by making already-required-to-be-public fee schedules and minimums difficult for prospects to find. And to make matters even worse, not putting your fees and minimums on your website makes it hard for other people to refer to you, as there’s nothing more embarrassing for a referrer than sending someone to you, only to have you reject them. As a result, referrers are tempted not to refer, because it's safe to not refer to you than it is to refer and risk creating an awkward social situation if their referral doesn't meet your minimums or can't afford your fees!

Another important consideration is how listing your fees and minimums allows your website to screen out non-qualified prospects. And this is valuable for advisors, because one of the most wasteful things you can do, from a business development perspective, is to spend a lot of time meeting with prospects who aren’t actually qualified to do business with you. When prospective clients can see what you cost and what your minimums are, if it's not a good fit for them, they'll just move on. Perhaps every now and then you’ll miss out on a prospect you might have converted and convinced you were valuable enough and worth paying for if you met in person. But you’ll also save a lot of wasted meetings with people who were, realistically, never going to do business with you.

Perhaps most important, though, is the simple fact that as a helping profession, most financial planners want to help people. Which means it can be especially hard to tell someone "no" to their face in a meeting, leading to the temptation to discount fees, reduce minimums, or make other on-the-spot concessions. And even for otherwise qualified clients, it's difficult in the moment to stand firm on your advisory fees if a prospective client questions them the first time they hear about the fee. But when advisory fees and minimums are disclosed on your website, prospects know the details up front - and if it's not a good fit, they likely won't contact you in the first place. Which reduces the risk that you put yourself in the awkward position where you make bad business concessions to a prospect simply because it felt too awkward to reject them (even if it would have been a good business decision to do so!).

Because in the end, actually putting fees on your website is not that hard. Just write “Our fee schedule is <blank>. The minimum to work with us is <ZZZ> of assets.” If you are concerned about the possibility that you might take a client with only $300,000 who was in their 40s, then go ahead and just write something like “Our minimums are $500,000 of investable assets. However, our services are also available to active accumulators under the age of 45 with only a $300,000 minimum.” In other words, if you have rules about how you decide which clients to take, or not, simply disclose it, and let prospective clients choose!

The bottom line, though, is simply to recognize that putting your advisory fees and minimums on your website is good business. Both because it helps to fulfill your brand promise of being a real fiduciary. And because it makes it easier to refer to you. But most of all, because it helps to screen out non-qualified prospects, so you don’t meet with them when you shouldn’t. Which at best wastes your time. And it worst puts you in a position where you can’t help yourself and allow your fees and minimums to be haggled down. Which is not good for your business in the long run!

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Receiving a new client referral has a substantial value for a financial advisor – so much that advisors often provide “thank-you” gifts, either as a simple expression of gratitude, or even as a means to encourage more referrals. Of course, regulators want to be certain that advisors don’t inappropriately “buy” prospective client referrals – in a conflicted or undisclosed manner – and consequently FINRA Rule 3220 limits client gifts to just $100 per year, and the SEC similarly expects RIAs to establish their own gift-giving (and gift-limiting) policies. Nonetheless, the fact remains that referral “thank-you” gifts are relatively common.

Except often the biggest challenge of giving a good referral thank-you gift is simply picking the “right” gift – something that is commensurate with the value of a referral (not too big nor too small), is appropriately personalized and relevant to the recipient, and will likely be appreciated and well-received by the referrer. Which for some advisors, is so stressful that it’s actually easier to give nothing at all – beyond perhaps a simple verbal statement of “thanks” – than risk giving the “wrong” gift.

Yet recent research on happiness suggests that the best thank-you gifts might not actually be giving a “thing” at all, but instead gifting an experience, or giving someone an opportunity to themselves spend on others. And in the modern digital age, a growing number of online platforms make this possible – from online experience-buying sites like Excitations and Xperience Days, to donation sites like DonorsChoose to help teachers fund classroom projects, or even TisBest, which simply sells “charitable gift cards” that the recipient can then redeem as a donation to any one of 300+ charities.

The virtue of such services is that ultimately, it puts power in the hands of the recipient to select the final gift – whether an experience, or a donation to someone else – which helps to reduce the risk of making a poorly-matched gift. But in the end, the true value of gifting experiences or the gifting the opportunity to spend on others is that it increases the likelihood that the recipient will actually feel happier after receiving the gift… which is perhaps the most powerful way to express gratitude for a referral.

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