Kitces & Carl Ep 53: Using Financial Plan Proposals To Show Planning Value To Prospective Clients

***Editor's Note: Can't get enough of Kitces & Carl? Neither can we, which is why we've released it as a podcast as well! Check it out on all the usual podcast platforms, including Apple Podcasts (iTunes), Spotify, and Stitcher.

Show Notes

• Kitces & Carl Ep 35: Favorite Questions To Ask A Prospective Client To Build Trust In The First Meeting
• Blink: The Power of Thinking Without Thinking by Malcolm Gladwell
• #FASuccess Ep 210: Growing Your Client Base By Making Advice The “Product” And Quantifying Its Value, With Sten Morgan
• Kitces & Carl Ep 45: (Re-)Structuring Client Review Meetings In Order To Focus On What Really Matters To Clients
• Values-Based Financial Planning by Bill Bachrach
• Start With Why by Simon Sinek
• The Dan Sullivan Question by Dan Sullivan
• George Kinder – Three Life Planning Questions
• Kitces & Carl Ep 48: Why Goals-Based Planning Doesn’t Work And The Possibilities-Based Planning Alternative
• Kitces & Carl Ep 42: Overcoming Objections By Asking More Questions To Truly Understand A Client’s Needs
• #FASuccess Ep 100: Scaling A Financial Life Management Firm By Starting With Client Intentions Instead Of Goals with Joe Duran

Kitces & Carl Podcast Transcript

Michael: Well, hello there, Carl.

Carl: Greetings, Michael. Happy New Year.

Michael: Happy New Year. How are you doing so far in the grand year of 2021?

Carl: Fantastic. Yeah. Things are great. Super good.

Michael: People who follow us by video and not just by audio will see, as we are opening here, that your background has changed. The blue couch, which obviously I was particularly fond of, is now gone. There is a very non-blue, otherwise known as red couch behind you now, which signals I know that you have moved now. You were in New Zealand for a long time – I think when we first started this podcast. You went to the UK. You are now back in the U.S.; you're back in Utah. You've come back home to roost, I guess. So welcome back.

Carl: Thank you.

Michael: But welcome back.

Carl: Thank you. Yeah, the blue couch has been swapped out for a red chair, but don't worry, the blue couch will be back soon. It's just being shipped from London back to Park City.

Michael: I have to say, I'm honored that you have such a connection to the blue that you would ship it from London just to stay on Kitces brand. That's...

Carl: I can guarantee you, that was the first point of conversation around what we should take when my wife, the interior designer, said, "Oh, but we have to because Michael loves the blue." For sure.

Michael: My best to your wife. We are clearly simpatico on the value of blue in interior design.

Carl: For sure, for sure.

Michael: On that theme a little, for our topic today, I put out this question to all the folks who follow us on Twitter, a week ago, around, "What do you want to hear us talk about?" We got a lot of feedback around what I kind of think of as the 'aesthetics' of the sales and prospecting process. When you're sitting down with a prospect in that meeting, where hopefully they're going to say 'yes' and become a client, maybe we brought a little bit of paperwork along that we're hoping they're going to sign. But we have the infamous marketing collateral, sales collateral – my friends in the institutional world will call this the 'sales enablement tools and materials', the supporting material that we have to close business, to close the sale. In the institutional investing world, this is like your pitchbook that tells the story of your investment process and your 157 years of experience and all the different things that we have in investment pitchbooks.

We had this question come in of, "Do you do this? Do you do something like this in the financial planning world? Do you bring a PowerPoint? Do you bring a brochure of services? Do you bring something else? Do you bring nothing? What do you bring to do the meeting when you're trying to close a client?" Or I guess I can say, "Do you bring anything to the meeting?" Because I'm fairly certain our answer to this is going to be different. Do you...or what do you bring, or how do you even think about this, Carl, of bringing that kind of stuff to a meeting where you're trying to get someone to engage you for financial advice?

What Should Financial Planners Bring To The Meeting To Close Clients? [04:14]

Carl: I love that question and I think you're right. We will have different views, which makes this fun. And one thing I know for sure is that I'm wrong, right? But I won't be in doubt about this one...I'm often wrong, never in doubt, and I'm pretty sure this will be the case again today. I think the tools for...to me, there needs to be a little context. So let's assume we've had a first meeting, and in that first meeting, we've had some sort of discovery process. We've talked about that at length. We've asked really good questions. We've understood. We come back for the second meeting and in that meeting, I think of the tool that we're going to bring there is simply to confirm – to help the client understand and to confirm in the client's mind that have thoroughly diagnosed. I think in order for there to be a 'yes' there, and the 'yes', again, is mutual, right? I really feel like we should get in that mindset where this is a mutual discovery process to see if we want to bring them on as a client, equally as much as them deciding whether they want to hire us. In order for a 'yes' to happen, there are two things that have to happen. One is, you have to thoroughly diagnose so that you can at least write the beginning prescription. With this audience, the people listening to this are probably really good at pattern recognition, and the diagnosis might happen relatively quickly. You might even be tempted to shortcut this process because you know already exactly what you're going to say in that meeting.

Michael: Meaning the client says, "I got this and that problem" in the first meeting as you're talking about it and you just come forth, "Oh, you could do this," or, "You could try that." You start trying to problem-solve right there in the first meeting.

Carl: This becomes particularly problematic or particularly tempting when you have a niche business. Because you've seen it before. I just want to make sure what we're talking about here is, two things have to happen: one is, you have to correctly and thoroughly diagnose, and the second one is, the client has to feel thoroughly diagnosed. And that's why I'm pointing at this idea of short-cutting it sometimes, because we become really good at pattern recognition. And the people listening to this, especially if you have a niche business, you specialize in something, you've seen it before. It may take you three minutes. "Oh, doctor..." boom, referred from this doctor. I already know what the problem is. It may take you three minutes to diagnose, and you will probably be correct about what the next steps will be. But you haven't given them a chance yet to feel diagnosed. Let me just tell you one quick story. For those of you watching YouTube, the sun has shifted and you get to...we'll just keep rolling now. I think that's better than me standing up and moving it.

Let me tell you a quick story. She is Russian. What she says means that she's really direct. She's Russian, and she's an emergency room doctor. And she has told me how often she walks into the lobby to get the next patient when there's a backlog of patients, and she feels like she can just look – I've had other emergency room doctors tell me this too, and I think Gladwell did a little bit in Blink around this. She said she can often just scan their faces and be like...she said she can reasonably sure on the people that she could just give Ibuprofen and send them home. She often wants to say, "Hey, how many of you want the answer, and how many of you want to go through the whole theater?" She's had two complaints in her career and both complaints have not been misdiagnosed. In fact, they were accurately diagnosed. The complaints have been, "She didn't take the time to listen to me." Just keep in mind those two things have to happen. This is my long-winded answer to, "What do we give?" To me, what shows up in that first meeting...I'm going to have to...those of you that aren't listening, you just have to understand for a minute, I just have to...and those that are, you get to see Michael and I make sausage. I have to just close these blinds because that was not expected, and we're in a new place and we'll all forgive each other for that.

Michael: Editing is a wonderful thing.

Carl: Even if we don't edit things, we just ship. Here's, to me, "What do we show a client in that meeting?" To me, it's a one-page financial plan. We haven't gotten to know each other yet. There's no way you did the full insurance analysis, and you did the full investment process, and you did all that. You're asking them to start the journey with you, and, to me, what we would show is a tool to confirm that we're on the same page. "Here's what I heard you say. Here's what we identified as your goals. Here's your current reality. Here's where you think you want to go. I think we're in the ballpark. Come with me on this journey. The way you do that is you sign up, and we get started." That's, to me, and I would do that on the smallest piece of paper possible.

Michael: I like how you framed that because the irony to me, I think back to at least the early roots of my career which were much more product-based and much more sales-based, and we did this. It was a product proposal; it was an investment proposal – maybe you generated from Morningstar, maybe you generated from whatever your product illustration software was. But we came to the table with this. "Here is a proposal. I have understood your situation to be (fill in the blank). I am proposing this as a potential solution. Here's how it would work. Here's how it would project or what it would look like embedded into your situation," because this was usually a narrow scoped product, so we're not doing a full comprehensive financial plan. We're doing the stuff we've got to do to show the thing that we're trying to sell. But we did come to the table with a proposal. "Here's where you stand. Here's where you're trying to get to. Here's what would need to change. Here's how the thing I'm bringing to the table helps that. Would you like to move forward?" And that's how we set up the story and ask people to make a commitment and sign. It strikes me, particularly in the context of what you're saying here, if you've been in the business for a while, you've done product proposals. A lot of firms do investment proposals and almost no one does a financial planning proposal, which to me is the essence of what you're talking about.

We had a version of this recently on the Advisor Success podcast. Sten Morgan, which was Episode 210 – kitces.com/210. He actually has a really cool version of this. He has a particular focus around taxes and how he quantifies the value of, "Well, we're going to do this, but we're not just going to do it in one year, we're going to do it over 10 years. And over 10 years you're going to cumulatively save this much in taxes. Just want to let you know, if we start working together, I know at least we have an opportunity to save you $72,000 in taxes, and of course, we look forward to working with you on a comprehensive basis. How does that sound?" And people are like, "Your plan's only, like, $5,000 a year. So $72,000 sounds like a pretty good ROI. Let's go down this road." Sten's taking it to the logical extreme of this of, he is figuring out a system of how to quantify it and boil it down to something more tangible so it really helps to put the fee in context, and maybe that's the advanced 'ninja' version.

But at its core, I think you make a powerful point here that just so few of us come to the table with a financial plan proposal. Not the plan, we're not doing the whole plan. The plan is what you get after the engagement because we have only gone so deep. But putting something together that, and again, I think you framed it well, that shows that you have heard their problems because you can reflect it back to them in the document. Every proposal document always starts up with, "Here's where you are. Are we agreed about this?" That's how you show them they're heard. Then here's the kind of stuff we're going to start doing together. Yes, I'm sure someone is listening to this is like, "But you can't know what you're going to do because you still haven't done the full financial plan." I get it. There are some things you know. There are some things we already know we're going to be doing. There are some things that are clearly broken. You know three minutes into the first conversation with the client of where some of this is going. We can start putting on the table the proposal, the preliminary plan – the one-page plan as you frame it – of, "Here's my understanding of your situation, your concerns, what you're trying to get to and change, and here are the areas where I think we could work together and I can help."

Using A One-Page Financial Plan Proposal To Quantify Your Value To Prospective Clients [13:41]

Carl: Let me just toss something out at you. Let me tell you what I think should be on that piece of paper, then we can talk about it. Then I think it would be useful to talk about our strong opinions about what it should not be. Because I just think that'll be helpful and that will cause some trouble and that's always good. What I think that that piece of paper should have on it, and again, I call it a 'one-page financial plan'. It's not the plan, as you pointed out, and people get hung up on that sometimes. I think it starts with...

Michael: You did call it a 'one-page financial plan'.

Carl: Yeah, but it's not the plan...you're going to do more work. I think it has a 'statement of purpose' – that's what I like calling it. It's a sentence or two right on top that really nails the 'why'. Point back to Bill Bachrach's work, Simon Sinek's work, Dan Sullivan, even George Kinder. Some little sentence or two – I like to think of it as a 'statement of financial purpose'. I'd love to see that as an industry standard. "There's a statement of financial purpose." Mine, for instance, says, "Time with my family, mainly outside, and service in the community," and I could rattle off 10 examples of clients'. Statement of financial purpose. Next, a list of goals that you've identified. You did that in the way...we've had lots of conversations about how you ask people about their goals. But I think that list of goals is listed, they're broad: pay for education, retire, take that trip each year – relatively broad goals – and they're listed in order of riskiness. In other words, the consequence of failure. You don't have to tell that to the client. The way the client views that is 'in order of importance'. The way you're viewing it is, "Which one would have the highest consequence of failure?" based on what they said. That could be for one client, that could be, "Nothing else matters if my kids don't get the education I want them to get". I'm thinking of, stereotypically, I've heard that a lot from immigrant families. "I absolutely care a lot about...nothing else matters." Somebody else could say, "They should pay for their own school."

Michael: We all have our own goals about how we stack them up, but that's the point, right?

Carl: Exactly.

Michael: I feel heard when you reflect back to me.

Carl: My goals.

Michael: Yeah. "I know a lot of people say you've got to pay for all your kids' stuff, but I believe they've got to work their own way through." And when you put that on the sheet back to me, I'm like, "Okay, he gets me. He's heard me. I don't want to do the standard thing" or maybe it's not...no judgment. Just how people feel heard.

Carl: Statement of financial purpose. List of goals. Next 90 days. Estimate of cost. Next 90 days is next actions. "What are we going to knock off in the next 90 days?" and those are broad. It could be that you heard in the first meeting, "Geez, my wife and I, since we had our second child, we just have never thought about life insurance, and it keeps me up at night." That would probably be your number one goal, because, consequence of failure, A, it's keeping you up at night, B, huge consequence of failure. Next 90 days – number one step, "You know what? Michael, in working together, we're going to knock out this insurance. In fact, next time we meet, I'll have a full plan on exactly what we should do, the type and quantity and how it fits into the overall thing." But you haven't done that yet. You just have that as next 90 days. Then an estimate of cost. That's what I would have on that page.

Michael: That was going to be my question, though, is how do I write what I'm doing in the next 90 days because I haven't done my plan yet? Do I have to do my plan to figure out what I'm doing in the next 90 days?

Carl: I think what you touched on earlier is really important. Give yourself some credit. You probably know...it might say, "Get portfolio allocated based on, A, what you told us. Get portfolio aligned with your goals." That could be number two. You certainly can't come to that meeting with an investment proposal. In fact, when we get to the "what not to bring", that's on the top of my list. But yeah...I think, give yourself a little bit of credit. You know based on what you've heard. It could just be, "Have an articulated philosophy for paying for education and come up with the options." That could be number two because you heard "education, education, education" in the first meeting. People don't care about your solutions at this point. They care about the fact that you nailed their problems. They'll want to work with...I think if you're stumbling upon objections, "I don't know how you invest the money..." if you're stumbling on tactical objections – we talked about this in one episode – I feel like that should be a sign that you missed something, that you didn't listen, that you didn't ask the right questions. And again, I know I'm probably wrong, but that's what I would love to see in the first meeting, sorry, in a close...a second meeting trying to...we'll use that term. Bring up a prospect onto a client.

Michael: To me, this is something that has really shifted over time, in just my experience of working through clients. We had Joe Duran from United Capital on the podcast a couple of years ago that I thought made this point particularly well, and I'm probably going to butcher it a little bit trying to paraphrase him. But the point that he made was we spend so much time these days as we've gotten more comprehensive in planning and trying to, not just sell the value of planning, but literally trying to sell the comprehensive plan. And the reality is, no client wakes up at 2:00 in the morning in a dead sweat because they don't have a comprehensive financial plan.

How Identifying The Prospect's Most Motivating 'Pain Point' Can Be More Effective Than Offering A Comprehensive Proposal [19:35]

Carl: Never.

Michael: They wake up stressed and they get off their duff and decide to finally hire a financial planner because there's a thing that hurts.

Carl: An acute problem.

Michael: An acute problem. If we don't – even if you're going to work with them on an ongoing basis – if you don't solve the first problem first, at best you sound tone-deaf, at worst, you never get the opportunity. I fell, and I injured my elbow and I think I might have broken it. And you go to the doctor and the doctor is like, "I'd be happy to put you through a comprehensive body scan over the next three weeks." "My elbow hurts. It's hanging kind of limp. Can we x-ray and put a cast on this?" The doctor is like, "I can't evaluate your elbow without doing a comprehensive analysis of your entire body chemistry to understand what I might prescribe and how it might impact the holistic body experience. So come back in three weeks and we'll finish the whole body scan." It's like, that could be totally right for a long term multi-year relationship with that doctor. But if you don't fix my darn elbow, I'm just going to find another doctor who will fix my elbow and put it in an X-ray and send me home that day in a cast. I think we do get into that trap sometimes, the more we've gotten focused on planning and advice, I think the more we've gotten stuck on that. What I like about the way that you're framing the proposal is, "I'm not even listing out all the things we're going to do because I can't do that yet because I haven't gotten through the whole plan". Just, "What is your purpose? Where are we going?" Because it helps the client feel heard. "What are the goals," so I can be clear that you have been heard and we're on the same page. And, "What's one doggone thing we're going to work on?" which is highly likely going to be your elbow.

Carl: The hurt elbow.

Michael: The hurt. We're going to tackle the hurt in the first 90 days, and you know what? As a part of that, I'm going to start gathering the stuff I need for the plan, and I hope we're going to be working together on a long basis. And, heck, maybe I even propose and quote an entire planning relationship. I don't have to just quote an hour of advice. I don't have to say the first thing I'm going to give you is the plan because the first thing I'm going to give you in the first 90 days is I'm going to help your elbow.

Carl: To me – we could just talk for so long about this – because the idea of the plan, to me, is just such a crazy...there is no "giant unveiling, one-time event called 'A Plan'". The plan is an ongoing process that never stops. You're just saying, "Let's start the plan." The plan starts with, "let's solve the acute problem right now", and it does get into this dance because, often – and I just want to acknowledge this – often the acute problem is investment performance. We know, often, people come in and go, "This portfolio stinks. I need help now." What we're not saying here is – and often we get the hardcore planners saying, "I'm sorry I can't talk to you about investment performance because I'm not about investment performance." What we're saying here is: this is the art. The dance, here, is knowing how to go, "Hey, I totally get it, man, that elbow looks like it really hurts. Look, there's a bone sticking out." Sorry to take that analogy a little too far. "We've got to fix that, and the only way for me to fix that is I have to have a little bit of context real quickly – can we talk a little bit about where we're headed? Okay, cool, cool, cool, cool. That took us 20 minutes. Great, let's get this fixed. First thing we've got to do is – you're not sleeping at night because you don't have health or life insurance, and this investment portfolio is a problem. Let's get that fixed." As we go, "Here's where we're headed." Give yourself a little credit. Nobody can give you the exact steps tactically to do this. You are a brilliant financial planner. You know how to handle this. Meet people where they are, help solve their problems. Give them...greet them with what they think they need, what they think they want, and then pull – carefully worded – pull 'righteous tricks' to get them to where they need to be. That's all we're doing in that first one to three meetings. We're starting that process. I think the more you try to convince people with facts and figures and numbers – which let's get to this point of, "What do you not bring?" Even if the person's coming in with the acute problem being investment performance, I don't think we want to to start a relationship with a battle around performance. Because we know many of you are really good at that and you'll probably win, and 18 months later you'll regret it because you'll lose again. Like a relationship won on performance is going to be lost on performance.

Anyway, I think that sums up what I have to say about that whole question, which is such a good question obviously.

Michael: One follow-up that I'd ask you – I don't know if we'll be similar on this or not – is, what about bringing something like a sample financial plan? We're not doing the whole financial plan because I haven't gotten the whole process done for you, and we may or may not do it right away or at least focus on it because your 90-day plan...maybe I'll do a plan in the 90 days' action, but I'm not going to make the plan the 90-day action. I'm going to make your elbow the 90-day action. What do you think about bringing a sample plan into the meeting? I'll admit for my end, I'm asking as a leading question. I've become a fan of this just sitting...having spent so much time trying to sit across from clients and say, "We do awesome comprehensive financial planning. It's great. You're going to love it. You're going to feel so much more organized. We're going to identify all these things and help you with them." I spent so many years trying to tell people how great it was going to be. It got so much easier when I just showed them – when I just brought one and showed them. The irony is, it will make you much more focused on how nice and polished your plan actually looks, which I think is a good thing, for charging thousands of dollars for plans, it could actually have a little bit more polish to it. But I started bringing sample plans and just saying, "Let me just walk you through, for a few minutes, what we're going to be creating for you as part of this process so you understand what you're getting out of it, why we charge these fees, why we're talking about planning, and what that really means beyond, 'you're going to talk about financial things, and I'm going to give you financial advice'".

Using A Sample Financial Plan To Demonstrate Value And What NOT To Bring To The Meeting [26:10]

Carl: I love that idea and I think of it as – and let's not take this the wrong way – but I think of it as part of the 'theater'. Look, that's important. It's not important just for us in the selling process. It's important for the client. Again, back to my Russian doctor friend. It's important to feel...so if you're going to help somebody behave, they've got to feel that way. I don't even know that it has to be opened, but just the heft of that thing sitting on the next and saying, "Look, where we're headed." I think you could also do this in some of those interactive plans that people do where you could say, "Look, let me walk you through where we're headed. We don't have enough information for this to be particularly useful at this moment for us, but here's where we're headed. Eventually – once a quarter, once a year – you and I will be sitting down and we'll be updating this thing, and it will be keeping you on-path, and we can show the beautiful line. All of that stuff. But first, let's fix the elbow." But the idea of a plan, flipping through it real quick, or maybe even just being able to...pointing at it, "Look, this is where we're headed and we're going to cover insurance, we're going to cover taxes, we're going to cover all this stuff."

I used to say to people all the time, "I am going to help you in so many ways that I can't even begin to tell you. Part of it is, I don't even know yet what your way is going to be. I could tell you stories from every single client what their way was, but your way will probably be different. It could be a behavioral thing. it could be taxes. It could be inheritance. It could be selling a business. It could be estate planning. It could be an asset location decision that we make. I don't know what your way will be," and that could be one way of you just pointing at, "But I do know that someday there will be a stack of stuff that looks like that." And just dropping on it...I used to do that, I used to use – for million-dollar portfolios, I used to use Dimensional's one-fund solution. People would pull up a million-dollar account and there would be one fund. Because it did all the rebalancing internally, you got rid of a whole bunch of behavioral problems. It was beautiful. To get over the, "Wait, I own one fund?" problem, I printed out the annual report. I used to print out the prospectus and the annual report, which was like, 2 inches thick because it was 13,000 positions. I would just drop it on the table. Looks like you own one thing, but you don't. Dunk. That was the end of the discussion. I think those visuals are helpful. I like that idea.

Michael: As we come to the end here, you've mentioned this a few times. What is your not to bring thing? What are we supposed to not bring to this?

Carl: To me, it's anything around convincing, proving. It's any crutch that I would use to get somebody to trust me that's not...

Michael: Not to undermine what we just said, isn't bringing the sample financial plan a version of proving..?

Carl: Yeah, yeah, yeah. Look, maybe the better way to point at this is, look, think of a doctor. You've never had a doctor walk you through all the studies of the medicine they're prescribing. And if you saw them print it over on the side of the table, you'd probably be like, "Oh, there's a lot of stuff out there." That could be helpful. But I think pulling it out and bombarding people with...I'm thinking the one thing I would be really hesitant to...at this stage of the game, is to try to prove that my portfolio is better than the last person's. "Let me show you..." because we all know that you give me any portfolio ever, and if I have the benefit of five years of hindsight, I can beat it. I think anything along those lines...I think if we just go back to, "What's the purpose?" The purpose is to confirm that we've nailed the problem. Somebody feels listened to and understood for the first time. The rest is theatrics, and I only think the thing that gets in the way, the thing that I'd point to the most, is probably the most common thing we use, which is some sort of – and I believe this is true in the institutional investment consulting world, by the way, because I did plenty of that – and we stopped bringing in 2-inch thick pitchbooks. I was going to use a name, but I know the next guy's going to bring in a pitchbook, and I know the next guy and I know the next guy. But we want to confirm that you've been heard. I would just avoid an investment performance pitch: "We're super smart, look at the portfolios, we build stuff."

Michael: To me, just the caveat at the end of the day, if as you're in that crucial phase of getting the client onboard and showing your value to the client, if you set investments as the anchor in that meeting, it's pretty hard to ever get the client to view you differently. We talk a lot about the dynamics of fees and "Do clients have to pay for it separately in order to value it separately?" Maybe we can do that as another conversation someday, but the challenge I find for a lot of firms: it's not that the client only pays an AUM fee and doesn't pay a planning fee that makes them investment-centric. It's that when we sit down for this meeting, we don't plot a financial plan proposal. We plot an investment proposal – an investment pitchbook – and then say, "And you're going to love our financial planning too," but we've already set the tone around the investments, and that's a hard thing to change later.

Carl: I love that.

Michael: I love the way that you frame this around a 'one-page financial plan', or, I think of it as a 'financial plan proposal'. If we stop coming to the table with investment proposals and we start coming to the table with financial plan proposals, you get a different kind of conversation with your client.

Carl: Totally. Love it. That's great. Thanks for that conversation, Michael.

Michael: Thank you, Carl.

Carl: Cheers.