Executive Summary
What is the value of financial planning? What do you get from it? What does it really do for you? Historically, the profession has tended to answer these questions with explanations like "financial planning brings you peace of mind" and "financial planning gets you on track for retirement [or other] goals."
The problem is that these results are intangible and long-term, which makes them hard to define clearly and difficult to be held accountable to over a relevant time period. In fact, arguably one of the greatest challenges for the advancement of financial planning is our inability to clearly explain the value proposition and what clients will get out of it.
So what's the solution? Financial planning needs to redefine itself from long-term intangibles to short-term tangible results; after all, clients who can really see that the outcome of the planning experience has benefited them become true advocates of our services, and build the habits that ultimately lead to long-term success! Which in turn raises the question: what are some short-term tangible results we can establish to better demonstrate the value of financial planning?
P90X For Financial Planning?
The inspiration for today's blog post is a recent commercial I saw for one of the latest the workout/exercise crazes, P90X. As with many similar programs, P90X commits that you'll see the results yourself when you look in the mirror in 90 days (or your money back!), and their examples and success stories are pretty impressive. In fact, I've included below a sample of one of the P90X commercials.
As I sat through the commercial, I couldn't help but think: what would it be like if financial planning could define itself to deliver tangible results like this in 90 days? Do we have to explain our value proposition in terms of outcomes that can only be measured in our heads (what exactly is "peace of mind", anyway!?) or over multi-decade time periods?
For example, as I've written on this blog in the past, the current data gathering experience - which is very planner-centric about getting the data we need to do a plan - could be transformed into a client-centric "Get Organized!" experience, where the client has an immediate, tangible outcome: at the end of the meeting, the client will walk home with a file box like this, filled with their sorted, organized financial information. Or better yet, the client can be up and running virtually using an online service like Mint.com, which in the future will be accessible for them anywhere, on any device! The point here: we don't just help clients get organized in the abstract; we provide them a hands-on, tangible outcome of an actual, physical file box that's organized and builds a foundation for the future!
What else might we deliver? How about 90-day results on client saving, investment, or debt goals? Help clients make decisions about how to change their spending, and then show the outcome 90 days later in terms of the amount of money that's now going into an IRA or 401(k), or how many shares of a mutual fund were bought. Or for the vast majority of Americans whose primary challenge is not savings but debt, provide the positive reinforcement of showing how their debt has been reduced by whatever amount, whether it's $10s, $100s, or $1,000s of dollars, and how their new trajectory will lead to future success. Imagine the client who comes into your office after 90 days and takes a pair of scissors to a paid-off credit card after struggling for a long time with debt. That's a client who will remember you and be thankful for your services for a long, long time to come.
I would note that the point here is not to be short-term about things like investment results - e.g., how much did your portfolio appreciate in the last 90 days - but instead to focus on changes to the client's behavior (from organized files to spending to savings and debt repayment) and how it has changed the client's financial situation. If the offering is rigorous and results in a material change to behavior, there should be a material change in the subsequent financial situation... just as P90X shows that a material change in your physical behaviors results in a material change in your subsequent physical health and appearance.
Now, I suspect some of you are probably thinking "Oh, come on, this is ridiculously short term. I'm here to help my clients succeed fiscally over the long term, not to cater to their short-term needs!" The problem is, that's not really how most clients think. The health industry has shown clearly through its struggles that "exercise now, you'll appreciate it 30 years from now" is remarkably ineffective for behavioral change. It provides no clear results, and therefore no positive reinforcement for the behavior, which makes it almost impossible for new habits to form. In other words, while it might feel "short term" to the planner, the reality is that this is how better long-term habits are built. Which means if we're really serious about helping our clients in the long-term, the way to do it is to think more short term with them!
So what do you think? Is it important to help make financial planning more relevant and tangible over short term time periods? What services or benefits could we deliver that show tangible results that could reinforce positive behavior and new habits? What do we offer that might have value to us, but not to our clients? What is the P90X of financial planning?
(Editor's Note: This blog post was featured in the Carnival of Personal Finance #356 on The Money Drain.)
Michael,
I love it. As a p90x crazy myself, I love the correlation. As you note, defining the context of our results in the short term is a challenging proposition.
One thing I position for the short term when dealing with clients and prospects is “getting your financial house in order”. simply helping clients get a grasp on everything they already have in place and sorting through it can be very valuable.
Mike Anderson
I guess I should note, to not be repetitive its very similar to what you state in your middle paragraphs, but I tend to do it more in checklist form so they don’t feel SO behind the curve by highlighting positively the things they already do have in place.
Mike Anderson
Yes..Michael..It does cone across very clear that when you tend to identify and address clients short term concerns/goals , they value lot more what we do for them and retention rates goes up.. My recent experiences do corroborate this..
How ever, this doesn’t take away the importance of planning for long term .
Like you said, when they see some results immediately, they become your champions.
We recently did some work for a client where we focused on cash flows to help the client build his dream house without a bank loan! He profusely thanked us for our single minded focus in drawing up cash flow strategies and re-allocate a significant amount of his existing investments towards house construction. Yes! All these were set in motion in 90 days by ensuring that the full corpus for the house was moved to his savings/short term investment accounts so that he could release payments on call at regular intervals by the construction company. We also ensured that he closed his earlier loans before building his dream home. The sum to build the home was fairly large (approx $ 300,000) and he was so relieved and happy to have achieved his goal in 18 months. In our comprehensive plan we also addressed his long term goals – child’s education goal and retirement goal.
The joy and satisfaction I saw in his eyes ( I met him last month and he was delighted to show me around the place) validated my belief that we are making a difference in people’s lives.
I completely agree and especially so for the computer age generation who expect results, more immediate gratification, and wants to be educated along the way.
Jackie..it is so true.. And I also find that this approach works wonderful with them. I have recently launched a new project focused on youth and my experience has been that they are looking for help to achieve their short to medium term goals and also want to be empowered in taking right decisions quickly..Technology plays the key role in this as they are so adept it. Would call them the google generation!
Partha
on your investing style. If you want to try to earn ctapail gains over short periods of time then a brokerage is what you need. Keep in mind you’ll need to trade large amounts at a time to minimize commission. If you’re a long term investor interested in dividends then DRIP’s are better. Once initiated, they require no effort on your part if you just want the dividends to reinvest and grow your ctapail. The only effort is buying more shares commission-free when you want.
I’m working with two couples right now who are experiencing much short-term pain. In one case, it’s because of the primary breadwinner’s loss of high-paying job and inability to find a new one after a year and in the other, it’s a newly wed couple trying to deal with their mutual credit card debt and increase credit scores so they can buy a house together. If I can help them work through these short term issues and feel some light at the end of the tunnel, I will have done my job.
It’s not to say the the long term isn’t important because we are doing that too, but lot’s of value is added by looking at the short term as intensely.
I think this would be a hard concept for many traditional planners to grasp since they themselves have a hard time pointing to value in what they do. The industry has kept this hidden by focusing on the very long term and seems to pat planners on the back when they take a deep dive inputting data, setting rates and handing over a book of charts that the client lets gather dust ( or hits the trash ).
For years as a planner what I’ve done is provide a one sheet “check up” that is really like a heat map for the clients goals. The more pressing goals (and short term ) are in the upper left and the not so pressing goals are in the lower right.
Along these lines, I set a benchmark for the goals and then show the client how far along they have gone to achieving the desired results. Clients can see exactly what happened over the short term and instead of feeling like the planner is “tackling their life” they get the idea that by chipping away at the small stuff ( short term ) first its easier to gain the trust.
America especially now needs 2-3 month goals and needs a planner to help them sort it out. Excellent idea.
This is exactly the mindset planners have to adopt. There is a delicate balance between long-term thinking (primarily pertaining to their investment mindset) and emphasizing short-term financial improvements (ie. 1-2 things a person can do in the next 2-3 months to improve their financial life by changing habits, saving a little more, clarifying their cash flow, reviewing insurance, etc.
In reality, we do these in reverse: we tell clients to think long-term, but then give them quarterly investment performance reports.
This is exactly the model that LearnVest has put in place to attract Gen Y and Gen X clients and the clients love it! They want to know how to better juggle multiple short term goals – TODAY! They’re not coming to us wondering if they’ll be able to retire in 40 years. We look at cash flow, revamp their budget, and give specific dollar amounts that they should be putting towards: paying down debt, saving for retirement, and building an emergency fund. But we also focus on starting a savings account to take that big trip, or saving for a wedding, or going to grad school. People are so grateful to have someone who will talk to them about their finances, receive a financial plan that’s actually readable, and then follow up with them about their progress. It’s how I’ve been envisioning the financial planning model changing for years and it’s so much fun to be a part of it! I think the model has to change to keep up with the next generation!
It seems we are having conflict between short term client’s objective V/S Planners Long Term Objective over performance. On both occasions planner has to satisfy client’s immediate problem like credit card debt,job loss etc… v/s retirement savings…
Financial Planning services quality can be quantified only when results are shown by the plan implemented and proving the client every time. What happens if overall portfolio of investments depends on stock market performance and it would have a impact on client’s trust with planner.
Quality services can be quantified through results.
These are all really great ideas. Showing clients short-term results on specific, tangible goals can go a long way toward building trust and long-term relationships. My question is this: How have you (for lack of a better word) monetized this value that you’re providing? This is a valuable service, but I wonder if client’s are willing to pay you for your time/expertise. The insurance/investment industry is designed in such a way that we have to sell something in order to get paid (we all have to earn money to live :-)), but the it may be hard to persuade a client to compensate you for this kind of service/value that you provide. Thoughts?
Michael, I was very excited to read your comments and agree wholeheartedly!
As a CFP(R) with over 20 years experience and a bent to help middle Americans, I’ve been working on a reasonably price online membership model that does EXACTLY what you’re wanting to see. There are NO advertising or product sales, and people CAN get short-term results to keep them on track for their long term goal of retirement. In fact, I used the P90x as a model, only mine is based on 24 weeks instead of 90 days.
Dave Ramsey does a fine job with debt reduction, so my services go beyond that arena. I developed the “financial watchdog” theme because I’ve seen through the years the stealth sales tactics perpetrated on the public. I’d love to hear from you!
This may be a good idea. Certainly a large segment of the population would benefit from changing their mindset about spending/saving. The problem is that much of the time you’ll be worse off for 90 days after seeing a financial planner. $1000 is a pretty reasonable price for a financial plan. But the truth is that on a “bottom line at 90 days” standard the client is probably better off putting that $1000 toward their debts or into their 401K. Only in the long-term does that investment make sense.
I think short term is important but also if you plan for long term I feel you will be better prepared. I found a great site that offers these types of services http://www.mercadien.com/mercadienam.aspx