Presenting financial plans to new clients marks a milestone in the advisor-client relationship. Data gathering is over and now it's time to advise a client.
As clients flip through the long booklet, they see tables, charts and graphs. But they don't necessarily know what to do with all that data.
Advisors are figuring this out. They're designing financial plans that double as user manuals. The reports are shorter, snappier and easier to understand.
That's good news, says Derek Tharp, a certified financial planner in Portland, Maine. He has a Ph.D. in personal financial planning. He's also an assistant professor of finance at the University of Southern Maine.
Tharp discussed with IBD how advisors can craft effective financial plans that address clients' individual needs. And he says advisors may choose to use free initial plans to convert prospects into clients.
IBD: How can advisors design compelling financial plans that are well received by clients?
Tharp: Less is more. You need to cover the key things without overwhelming the client. The old-school, 100-page tome is outdated.
IBD: So how long should the plan be?
Tharp: It depends on the advisor and the advisor's compliance team. If you need to go deep with disclosures and supplemental information, (perhaps put that info) in an appendix. Providing 100 pages is a little too much for clients to take in, particularly if one big, important question is on their mind.
IBD: How can clients derive the most benefit from the plan?
Tharp: Advisors should focus on a few action items. Maybe (create) one page to take away on what actions the client should take. And (the plan should go over) the key metrics for meeting the client's goals.
IBD: Can you give examples of key metrics?
Tharp: It could be the savings rate (needed) to meet a certain target. If the goal is buying a home, (set out how much the client needs to save per month) to reach a down payment (within different time frames).
Highlight Client Goals In Financial Plans
IBD: How does financial planning software affect the look and impact of the financial plan?
Tharp: Software plays a big role, especially if advisors use it to format the report. Some advisors who work for a large (financial services company) might have to rely more on the software to produce the final plan. They can't make changes on their own. Another camp of advisors, such as (independent) advisors, might have more flexibility to choose (elements) from PowerPoint or a Word doc. Then create one consolidated document.
IBD: Any tips on choosing the best software?
Tharp: Choose software that aligns with your approach. Some software focuses on goals-based planning. Others focus on cash-flow-based planning. The biggest thing is not to rely on software that just puts everything into six modules. (If you do that), the client's questions may be different and unresolved by the software.
IBD: What are some design elements that can enhance a financial plan?
Tharp: A color dial on a Monte Carlo simulation might push a client to think about their results in a certain way. The dial can show the probability of success of different scenarios. It can be red if the probability is 0-70% and turn green above 70% to show that higher is a more positive outcome. Design tools like that can nudge us toward certain success levels.
IBD: What role do visuals play in helping clients get the most from their financial plan?
Tharp: It's important for advisors to pay attention to the visualization. One good chart can be far more enlightening than 10 scenarios or long blocks of text.
Getting Clients To Open Up
IBD: Advisors need to ask probing questions to collect data to assemble the plan. What's the best way to get prospects and new clients to open up?
Tharp: The data gathering process is crucial. It has to be more than somebody just filling out a questionnaire. In the initial fact-finding meeting, clients won't come right out and say, "I'm scared of this happening." Advisors need to ask the right questions. Then they have to hear the emotion behind the reply and explore that.
IBD: What questions should advisors ask to get started?
Tharp: I like to ask a new client, "What particular thing has prompted you to reach out to me?" And at the end of the meeting, I like to ask, "Did we cover everything?" and "Anything else we're missing?" I've found that some of the most important things come up at the very end of the meeting. That's when they might say they're going through a divorce. You need to give them space to share that.
IBD: How about when advisors meet existing clients to review their financial plan? What's the best way to kick off those conversations?
Tharp: With ongoing clients, the risk is greater if you assume nothing has changed. Maybe something has happened to get them to rethink their priorities. That's why when you're reviewing their financial plan, it's important to ask, "Any changes since we last spoke?" I also like to capture most key aspects of a client's financial life using Asset-Map software.
Free Or Fee For An Initial Plan?
IBD: Some advisors draft a financial plan for free. Others charge a fee for it. Your thoughts?
Tharp: It depends on what their capacity is (for taking on more clients). An advisor at or near capacity may want to charge for it. I've found that providing a free initial plan does not reduce the perceived value of the ongoing planning that the advisor can provide. And it doesn't reduce the perceived value of the plan itself. It can actually open the door to a larger relationship.
IBD: But if you charge for something, doesn't it seem more valuable?
Tharp: If advisors charge $3,000 for a financial plan, it changes the client's perception. Maybe they feel the ongoing planning is then only worth $3,000. As an advisor, I prefer the free initial plan because the client can see the value in ongoing planning, without anchoring to the lower-dollar value of a one-time plan.
