Decades ago, when the financial advice industry was focused primarily on the sale of investment products and insurance, the standard planning approach was to conduct a gap analysis to highlight the client’s needs… so that the advisor could implement whatever available products they had to address those needs (and earn a commission in the process). More recently, financial planning has shifted away from a needs-based approach, and towards a more aspirational “goals-based” approach where clients commit to pursuing advisor-recommended strategies to achieve those goals. Yet the challenge of goals-based investing is that it presumes clients know what their goals are, and can effectively articulate them… which in practice isn’t always the case. In part because the compounding math of wealth accumulation itself isn’t natural for most, and it’s difficult to set goals if you don’t even know what the compounding of saving and investing might make possible in the first place!

In our 48th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss why goals-based financial planning puts the proverbial cart before the horse, the importance of exploring the possibilities first, strategies to dig deeper with clients to create frameworks from which realistic and meaningful goals can be developed, and why iterative planning allows advisors to develop long-term relationships with clients, where the focus isn’t on The Plan, per se, but rather on the process of planning and adapting to what else may become possible over time.

As a starting point, it’s important to understand that humans in general aren’t really wired to envision a future that is substantially different from what we experience today. It’s little wonder, then, that clients, when asked about their “goals”, often don’t have very good answers... and may even sometimes wildly unrealistic expectations (which, in turn, forces the advisor to become the “bearer of bad news”). Which means that the first (and perhaps most underrated) thing that an advisor should do is to help clients understand the myriad of possibilities ahead of them, explore a range of scenarios, and understand the inevitable trade-offs and choices that they will have to make along the way.

From that “possibilities-based planning” foundation, advisors can focus on asking good questions that lead to meaningful conversations around helping clients discover those things that are most important to them, identify their desired future state, and then build a framework upon which they can define (and start moving towards) their goals. In turn, defining those goals with a possibilities-based discovery approach creates room to reassess those goals and to shift over time… while allowing the underlying framework to remain in place.

Ultimately, while it’s not necessary to completely discard the notion of goals-based planning, the key is to examine what the various possibilities are to begin with, before even thinking about asking clients what their goals might be. By thinking more along the lines of possibilities­-based planning, advisors can help clients determine what are realistic goals to set in the first place and determine the most efficient recommendations that will allow clients to focus on what’s most important to them and get them to their desired future state.

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When it comes to financial planning, it’s impossible to create (and then implement) a plan that will improve a client’s life and help them reach their goals if the advisor doesn’t have the data to analyze the situation and formulate recommendations in the first place. Yet even though having the requisite data is the most important piece of a client’s financial puzzle... every advisor at some point experiences the challenge that it’s not always the easiest task to gather a client’s pertinent financial data in the first place. From a client’s perspective, the process of collecting all the necessary facts and figures and then entering it all into a multi-page intake form isn’t anyone’s idea of a good time… and the irony is that the clients most in need of help may not be organized enough to gather their information to give it to the advisor, to begin with. Which in turn raises the question: are there any better ways that advisors can get the data they need to do the planning work they’ve been hired to do?

In our 47th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss a few of the reasons why getting data from new clients may sometimes prove to be such a challenge, how advisors might shift their thinking around data-gathering to overcome the challenge, and some simple strategies to help clients get more comfortable with the data-gathering process itself.

As a starting point, it’s important for financial advisors to take a step back and consider why they’re gathering a client’s financial data in the first place. As while data is a wholly necessary ingredient in every comprehensive financial plan, it’s also important to recognize that financial planning isn’t an event that happens once and is set in stone forever; instead, it’s a process, and initial meetings with new (or prospective clients) are more about building connections and helping them be more comfortable, than they are about getting (potentially too) bogged down in the minutia of account balances and interest rate assumptions. That’s not to say, though, that advisors shouldn’t be asking great questions to learn about a client’s current situation and what’s most important to them. In fact, those are the key ideas and details that can then be used to identify what blanks need to be filled in first!

Meanwhile, advisors can also find themselves in situations where new clients simply aren’t organized enough to collect the necessary statements and get stuck in a downward spiral of guilty feelings over not being able to give the advisor the data that’s being requested. But it’s those clients who most need the help of a financial advisor who can live up to the profession’s promise of “helping people get their financial house in order and focus on a plan for their future”. Which means in such instances, instead of having clients gather, organize, and deliver their own data, advisors may simply wish to have the client bring in their piles of unopened statements… and help them through the process of sorting it all out (with the bonus of helping them finally truly get organized!).

Finally, advisors can also leverage the latest iterations of financial planning software packages to make data gathering more interactive and engaging for the client to want to get through the process. By building out the initial iterations of a plan with clients, not only will the advisor give them a more genuine and tangible financial planning experience, but clients can often get excited about the process itself and begin to feel the motivation to make sure it’s as accurate as possible when they literally see their financial plan taking shape before their eyes… and in the process, end out wanting to actively pursue any missing information that was needed in the first place.

Ultimately, the key point is to recognize that financial planning is a process rather than an event, building long-term relationships is more about making connections than collecting as much data as possible at the early planning stages, and often clients don’t have or know where all of their data is. And by making it easier to get started by meeting clients where they are with the data they have, and focusing on just the most important data points (which will vary on a case-by-case basis) in an interactive setting, financial advisors can demonstrate, in real-time, the connection between the data and the benefit that financial planning will bring to a client’s life.

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Over the past decade or so, the financial planning profession has continued to shift away from its transactional business model roots – where a client is a “client” simply because you’ve done business with them at some point in the past – to a model driven by long-term planning relationships (where a client is a client because they’re actually in an ongoing client relationship). As such, many advisors are making that same transition themselves, as they expand their expertise and introduce additional services for their long-standing clients to round out an ongoing service model. Along the way, though (and often due to the performance-centric nature of the transactional relationship), advisors may not have formed a full and complete understanding of all of their clients’ circumstances (beyond what was necessary to know to implement the original product recommendation). In turn, those same clients may themselves be accustomed to a certain cadence and routine of annual meetings. The net result is that advisors may sometimes struggle when trying to figure out the best way to introduce those clients to a more holistic planning-centric relationship, and gain a clearer picture of what’s most important to them beyond the original product need (that the advisor may not have really delved deeply into in the past).

In our 46^th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore best practices for transitioning longer-term transactional clients to a more planning-centric relationship, how to introduce the concept during regular meetings (particularly when the advisor may need to gather additional information that they hadn’t asked for along the way), and why a gradual (and possibly interactive) transition may be better than making any big “now we’re doing financial planning!” announcements.

As a starting point, it’s important to understand that there’s no shame in needing to learn more about long-term clients. One approach to introducing the conversation is simply to include some initial discovery questions as part of a ‘normal’ agenda, which in turn would provide the advisor a reason to start spending more time on deeper questions in subsequent meetings, as a means of going beyond the ‘traditional’ client review meeting that’s so often just focused on portfolio performance reviews.

From there, advisors can start filling in information gaps that may have opened up over the year, not by shoving a thick intake questionnaire in front of the client (which could prompt clients to wonder if their advisor shouldn’t already have asked for that information years ago), but by using modern interactive planning software where the pertinent information can be populated live (and collaboratively) in the meetings themselves. The important thing again, though, is that these things don’t have to happen all at once, and instead can happen iteratively over time.

Ultimately, the key takeaway is that advisors don’t need to make any drastic changes in the way they interact with their clients to introduce a more planning-based approach. Rather, by making the process more conversational, interactive, and gradual, advisors can start by asking deeper questions to find out more about their clients’ long-term goals, gather any missing data by using interactive planning tools available in various planning software applications, build more financial planning depth from there in subsequent meetings, and foster a deeper relationship with a more engaging process of real financial planning.

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In the early days of financial advice, an advisor’s primary (and key) value proposition was giving clients access to capital markets via various investment products and vehicles that consumers simply couldn’t buy on their own. And as a result, the nature of the advisor/client relationship was such that they would ever only really need to interact when some sort of transaction needed to occur. However, as the internet made various investment products increasingly accessible to consumers directly – through online brokerage accounts – many advisors’ primary value-proposition became managing a more holistic diversified portfolio… necessitating regular (often quarterly) meetings to discuss the performance results of that portfolio. Yet as the financial advisor value proposition begins to shift once again, and the profession further broadens its scope to include all the other facets of a person’s whole financial picture, many advisor/client review meetings still revolve largely or entirely around investment performance reviews. Which (especially for advisors who are transitioning clients into ongoing planning relationships) raises the question: how exactly does the advisor change the conversation in review meetings with their clients to be less investment-centric (when it may be all their clients have ever known!)?

In our 45^th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards explore what it takes to restructure the client review meeting, and discuss what advisors might talk about on a high level with their clients, how action items (which stem from their Goals) help them make progress towards their “desired future state”, and a way to systematically structure those meetings in such a way that allows the advisor to demonstrate exactly how they’re bringing more than just investment value to the relationship.

As a starting point, advisors can think of the periodic review as a sort of “State Of The Plan” meeting, which (barring any unforeseen events in their lives) typically is to know that they’re making progress towards their goals. Accordingly, on a broad level, talking points can include a review of the client’s Statement Of Financial Purpose (which could include things spending time with family, serving in their community, or traveling, to name just a few), Goals (which flow out of the Statement Of Financial Purpose), and then their progress towards those goals and if the use of their capital still aligns with where they are headed (which is where the real meat of the conversation resides).

Meanwhile, a strategy for structuring these meetings might include actually crafting a physical agenda, which should cover a basic check-in to make sure the proverbial plane is still flying in the right direction, any news and updates (either within the advisors firm or out in the world that might have a bearing on the discussion), some sort of planning item (which, depending on the time of year, might revolve around taxes or estate planning), and then (and only then) a portfolio review. Ideally, the agenda should be delivered a few days before the meeting itself, which will not only help build trust (first by telling the clients what will be discussed and setting expectations, and then by adhering to that agenda), but also gives them an opportunity to add anything that may have come up that the advisors isn’t aware of yet (further facilitating more non-investment-centric client conversations). .

Ultimately, clients really just want to learn three things when they meet with their advisor: are they okay, are they making progress, and are getting their money’s worth from the advisor relationship? And by using a consistent structure and cadence, with a standardized meeting agenda, not only can an advisor make those periodic review meetings more valuable to their clients beyond a discussion around portfolio performance (which can be sent separately anyway), but it also provides a framework that they advisor can use to mention all the great things they’re doing behind the scenes to continue to earn their clients’ business as well!

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For much of its history, the financial advice industry has been dominated by a commission-based business model, where the comprehensive financial plan was a form of consultative selling that demonstrated to the prospective client their gaps (that the advisor’s products could fill). Given the one-off nature of the model, financial advisors would, in turn, need to gather as many clients as they possibly could in order to have a stable of existing clients with whom they do business again sometime down the road... often to a point where the advisor became overwhelmed with the number of individuals that they had to try to stay in touch with. However, as the nature of financial planning has become more about the relationship and ongoing advice rather than ‘just’ the transaction being implemented, additional business models (whether they be based on assets, income, a flat fee, or hourly) have evolved, giving advisors options to more effectively get paid for the ongoing advice relationship and providing ongoing comprehensive advice to their clients. Yet when an advisor has in the past primarily or only been compensated by commissions (that their clients don’t necessarily see), the transition to charging upfront or outright fees can be challenging. Which raises the question: what is the best way to communicate to clients when transitioning to a more fee-oriented business model?

In our 44^th episode of Kitces & Carl, Michael Kitces and client communication expert Carl Richards discuss the key mindset shifts that advisors need to make in order to better serve their clients and themselves, how to present to clients who may not initially get why anything needs to change in the first place, and why, at the end of the day, most clients may not end out transitioning over... and why that’s okay!

The best way to navigate the transition to a more fee-based model depends on how the advisor comes to the proverbial commission/fee crossroads. One camp comes from the traditional brokerage model, and after years of accumulating a Rolodex of (sometimes hundreds of) clients find that they are starting to burn out, and want to get off the treadmill of having to continuously find new people to do business with and finding new products to offer. These advisors want to build a more focused business, with a smaller subset of their top “A” clients, and will often seek to transition legacy clients who they may have interacted with only a few times over the span of several years. In such circumstances, advisors will need to clearly lay out how the relationship will change, and all of the new (holistic) services that the clients who are staying will be getting on a regular basis.

The second type of advisor transitioning to a more fee-based model may have already started providing ongoing services, are proactive with their planning, and having regular meetings… but are getting buried in the volume because their (transactional high-volume) business model doesn’t match their (relationship-oriented lower-volume higher-touch) service model. In such instances, the conversation isn’t around all the services the advisor will be providing, but rather making sure that the fee structure is aligned with the work that’s being done so that it can continue to happen sustainably and scalably on an ongoing basis.

Ultimately, the key point is that the transition conversation isn’t about suddenly charging clients more and new fees, but instead doing a better job of aligning the advisor’s ongoing value to their ongoing business model, and aligning their ongoing business model to the advisor’s ongoing services. And, at the end of the day, it’s important to realize that many clients who hired an advisor for a more one-time transactional service will decide not to transition to a more ongoing relationship-based model, which may seem daunting at first blush but really means that the advisor will simply end out working fewer hours with a more focused clientele who really value what the advisor does and are willing to pay for it, ensuring the advisor can profitably serve the right relationships and charge what they are really worth!

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In the early days of financial planning when an advisor’s primary function was to provide access to capital markets, fees that clients paid were baked into the cost of the product they were buying. With the advent of planning as a service, however, fee transparency became an important feature for clients. Accordingly, charging an explicit fee for financial planning is a relatively new phenomenon, and as a result many financial planners struggle not only with when and how to communicate the fee itself and the value they provide, but with the fear that they will scare away prospective clients in the process.

In our 43rd episode of Kitces and Carl, Michael Kitces and client communication expert Carl Richards discuss the merits of two opposing philosophies around when to discuss fees with prospective clients and strategies to help clients understand the value of the services an advisor provides.

One approach, for some advisors, is to first create context around the services they provide before discussing fees, leaving it until the end of the second meeting after gaining (and demonstrating) a clear understanding of a prospective client’s situation and presenting a rough plan about how they will align the use of the client’s capital with what they state is important to them. By doing so, the advisor can give the prospective client the experience of what it will be like working together.

Another approach, meanwhile, is to state their fees directly on their website, so prospective clients can either filter themselves out of the process even before it begins (because, for some people, one of the main determinants of whether or not they will hire an advisor is if they can afford it in the first place) or at the very least come into a first meeting with a clear understanding of what they will be paying. Moreover, in an environment where advisors market on being transparent around their fees, waiting until the end of the second meeting to discuss fees is the opposite of clear and transparent.

Regardless of the approach, the important thing is for the advisor to be confident that they will deliver value for the fee that they charge. Because a fee will only ever be questionable in the absence of value. And explaining that value simply boils down to gaining an understanding of what a prospective client may be comparing the fee to (e.g., did they have a negative experience with a previous planner or think that they weren’t even paying a fee at all?) and figuring out where their “cost anchor” may be (e.g., do they view the fee as an expense that is anchored to their annual cashflow versus an investment that is allocated from their entire balance sheet?).

Ultimately, the key to discussing fees is first solving for when to discuss fees, and being able to do so confidently. After that, the value part of the equation hinges on understanding what clients might be comparing the process to and ensuring that they view financial planning as an investment in themselves and their future. Because when you can relate the fees to their lives, align it with their pricing scale, and address the problems that they're trying to solve that brought them in the first place, the whole nature of the fee/value conversation becomes much more collaborative!

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