Executive Summary
The typical client meetings conducted as a part of the financial planning process are challenging. It starts with data gathering, but clients can’t easily produce the needed data to analyze the situation. Clients are asked about their goals, but often articulate ones that will just result in a plan that “fails”. And the whole process culminates in a physical printed plan output that most advisors agree is rarely read by clients anyway.
Even worse, from the client’s perspective – since they don’t see much of the behind-the-scenes work that happens – financial planning is little more than providing data to the advisor, and getting printed planning software output in response. As though a financial advisor does little more than software data entry!
So in a world where the goal is to get clients to actually value each meeting of the financial planning process – rather than simply having it be a data-gathering-for-software-output experience – how could each meeting in the financial planning process be reimagined to be more relevant, more collaborative, more interactive, and more immediately and tangibly valuable?
Getting Compensated For The Typical Financial Planning Process?
The recent “2015 Trends In Financial Planning” study from the FPA’s Research & Practice Institute interviewed over 750 financial planners to understand how financial planning is delivered today.
The results of the study indicated the “typical” financial planning process is:
1) Send new clients a data gathering worksheet
2) Engage in a “data gathering” meeting to fill in the gaps in the data. Follow up with the client’s other advisors further to round out the data.
3a) Spend seven hours as the advisor (plus another six hours of team support) inputting the data into financial planning software and analyzing it
3b) Use additional spreadsheets or other software to conduct further analyses not supported in today’s financial planning software
4) Produce a paper report printout of the plan and deliver it to the client
5) Monitor the client’s situation annually or as-needed
The financial outcome of this process for the advisor – after nearly 20 hours of cumulative work between the data gathering meeting, software analysis, and presentation of the financial plan report – is a flat financial planning fee averaging around $2,000 to $3,000 (which amounts to just over $100/hour for the advisor’s time). And in 1/3rd of those cases, the fee is further discounted if the client chooses to implement. If the planner even charges for financial planning at all.
Ironically, even though it’s so challenging to get paid for financial planning, a whopping 75% of advisors still report that clients who received financial planning are more profitable. Though clearly this is not driven solely by the financial planning fees paid. Instead, it seems to be driven by the fact that the overwhelming majority of clients who go through the financial planning process end out implementing investment strategies with the advisor beyond just the planning fee!
In other words, it’s still the case that most financial planning is at least partially paid for ‘indirectly’ through investment management or product sales as a part of the implementation process!
Is The Typical Financial Planning Process Even Worth Paying For?
While from the advisor’s perspective, the typical financial planning process often feels laborious and time-intensive (and a struggle to get paid for the time it takes), it’s notable that the client’s experience may be even worse! After all, much of what happens in financial planning is ultimately behind the scenes from the client’s point of view.
Which means that when it comes to the client’s perspective and interactions, the financial planning process is:
1) Receive “homework” that you’re probably not organized enough to fill out from the advisor
2) Spend two hours in a meeting trying to answer further questions about financial goals/details you don’t remember/know clearly in the first place
3) Go away for two weeks
4) Come back and get a giant printout of projections and a page to tell you what to do
5) Go through the process again to get updated software projections as “needed”
In other words, from the client’s perspective, financial planning amounts to little more than trying to give an advisor a bunch of data, and having the advisor come back with a printed report. Or viewed another way, the financial planner is operating as little more than a glorified data entry device to put the client data in and get the software output in return!
Accordingly, then, it is perhaps no surprise that it continues to be a struggle for most financial advisors to get paid on a standalone basis for financial planning. Ironically, in many situations the planner isn’t even substantively getting paid for his/her own advice – it’s literally nothing more than the sale of the financial planning software output! In other situations, the planner perhaps adds something to the process when conducting the analysis and crafting the recommendations, but from the client’s perspective the bulk of the experience still centers around providing data to the planner and getting a printed report in return.
To say the least, the meetings that the client attends are not exactly a central part of the value (even that’s the primary experience of the client!). In fact, the experience tends to be remarkably one-sided, with the advisor asking the client lots of data questions in the first meeting, telling the client what to do in the last meeting, but not necessarily really engaging the client along the way at all. In fact, the FPA study notes, only 25% of financial plan presentations involve any kind of client experience where the planning software is actually used interactively and collaboratively!
Reimagining A Client-Centric Financial Planning Process
In a world where the “value” of many financial planners ultimately boils down to little more than doing the data entry and “work” necessary to operate financial planning software, it should be no surprise that few clients are willing to pay for it, and many/most who do are very affluent (where their time is so valuable they’re willing to pay an advisor to take the data, input it, and operate the software for them!). And in point of fact, as more and more direct-to-consumer software solutions become available, it may only be a matter of time before consumers really can do the software part themselves, making this aspect of the financial planning process wholly irrelevant and value-less!
So if we were going to re-imagine the financial planning process to be more useful and relevant from the client’s perspective, what would it look like?
Get Organized
The starting point would be to recognize that most people aren’t particularly financially organized in the first place. Those who are already highly organized are probably more likely to be self-directed in their financial strategies and behaviors in the first place. While some clients might already be well organized, for most the first step of the process would simply be helping them to get organized, so it’s even possible for them to take the next step in the financial planning process.
Notably, this might also be an opportunity for us, as advisors, to gather data from them – in the process of helping them to sort out their own financial lives – but from a client-centric perspective, the first meeting should be a “Get Organized” meeting!
This could include both helping the client to get physically organized (e.g., providing them an actual personal organizing file system), using online tools to help (e.g., signing up the client for a personal financial management [PFM] software tool), and helping the client to visually construct a full picture of their financial situation (e.g., with mind-mapping tools).
Explore Possibilities And Set Goals
Once the client is actually organized and has an understanding of their current financial situation, it’s time to help the client imagine what possibilities the future could hold. In other words, just as few clients are really already financially organized, even fewer have any idea what their financial goals really are. So going immediately from gathering financial data to gathering goals is useless.
So the second meeting of the planning process, from the client perspective, would be to “Explore The Possibilities” using financial planning software interactively to understate what could be, and what the tradeoffs may entail in pursuing various alternative scenarios. That allows the client to even figure out what the goals realistically could and should be. And contingency plans can be formed about what would realistically need to be done to stay on track if a problem arose.
Brainstorm Strategies And Analyze Tactics
The fact that this “extra” meeting occurred – already beginning to use financial planning software – in order to explore possibilities and set realistic goals before beginning the “analysis” stage now makes the job of the financial planner far easier to brainstorm appropriate financial planning strategies and analyze specific tactics to consider. No longer is there a risk of analyzing the data and constructing plan recommendations that turn out not to be viable because at the plan presentation meeting, it turns out “the plan” doesn’t work, and/or the client doesn’t want to proceed until looking at more/alternative scenarios.
Instead, it’s already known that the current goals are at least “somewhat” realistic and feasible. It’s just a matter of crafting recommendations about the best way to get there, and what tools and techniques would be implemented to do it - which is where the planner’s expertise is highly relevant, whether it’s suggesting portfolio changes or a new insurance policy, shifting savings to a retirement account or engaging in a Roth conversion.
Illustrate Recommendations And Prioritize Implementation
The next and final meeting is where the crafted recommendations - specific tactics and action items - can be illustrated to the client, to show how each recommendation further improves the path towards achieving the stated goals (and provides the opportunity for the goals to be tweaked further, given the positive impact of the advisor-recommended tactics).
Notably, there really is no need to present a formal “plan” at this point, since the output of the typical financial plan was already explored interactively in the second meeting. And in point of fact, in this meeting the financial planning software tools would likely be used interactively again, to educate the client and illustrate before/after outcomes of the specific financial planning recommendations. This provides the client an opportunity to understand exactly how each recommendation would work and the benefit of the tactic, decide whether/which ones to proceed with, and to prioritize which recommendations will be implemented first (since clients cannot possibly implement every recommendation all at once!).
The goal by the end of the meeting is for the client to be committed to taking action on the top 1-2 recommendations that can be executed in the coming months (and then engage in the next meeting to decide what to tackle next!).
A Three-Meeting Financial Planning Process
Ultimately, this three-meeting planning process – Get Organized, Explore Possibilities And Set Goals, and then Illustrate Recommendations and Prioritize Implementation – may seem very similar to the “traditional” financial planning approach of gathering data, presenting a plan, and following up for implementation. But there are important differences. Planning software is used collaboratively up front to explore possibilities and set the goals, rather than “asking” for the goals and presenting a plan to show how they will turn out (without knowing whether the plan to be presented will even be viable in the first place). Analysis only occurs after the advisor and client collaboratively plan around potential scenarios. And because the plan is already known to “work” from the beginning, the focus of the final meeting is not on presenting “the plan” to see whether it works, but to present (and illustrate) the recommendations and why/how they help, and determining which to implement first/next.
Ultimately, though, the fundamental point is simply that creating value in the financial planning process must move beyond just gathering client data up front and providing the output of financial planning software at the end. It diminishes financial planning to being little more than just glorified data entry – no wonder few clients will pay for it! – and isn’t even a very effective process for actually helping clients to identify their financial goals and how to achieve them. Instead, a truly client-centric financial planning process actually guides clients through a process to get financially organized, explore the possibilities to set realistic and achievable goals, and then formulate the tactics to best reach those goals – while recognizing what clients need to really help them make progress along the way!
So what do you think? Is it time to re-imagine the financial planning meeting process? Is the value you provide to clients in the output of the software, the analysis you do behind the scenes, or the interactive experience you give them in the meeting itself?
