Let’s define “profiling” as the process of gathering data about someone (ideally a current or prospective client) in sufficient depth to understand where they are financially, how they got that way, and perhaps most importantly, where they want and where they need to go in the future.
That information is typically gathered in three ways. You can interview your subject. You can ask him or her to provide a written statement. Or you can have him or her fill out a questionnaire. In any event, there are at least three reasons that you need information from the client:1. You need it in order to make the best possible recommendations.2. You need it to, as Lou Harvey, president of financial services research firm Dalbar, puts it, “uncover opportunities and threats.”3. It’s a great way to establish (or deepen) your relationship with the client. Few things create a bond better than asking questions, listening and writing down the important things he or she says.
Starting OutObviously, the first thing you need to know is who your customer is. Your broker/dealer has outlined procedures you must follow to verify a client’s identity, based on requirements set down in the Bank Secrecy Act and USA Patriot Act. Gather this information before the profiling process really begins.
This information also helps you ensure that your investment recommendations are suitable. For our purposes, we’ll refer to NASD Rule 2310. You have obviously read the entire rule, so let’s just review the specific requirements.
To determine the “suitability” of a potential investment, you must know:1. The customer’s financial status2. The customer’s tax status3. The customer’s investment objectives4. Such other information used or considered to be reasonable by such member or registered representative in making recommendations to the customer.
Of course, the litigious nature of our society today is the strongest case for using a written questionnaire in your interviews, referring to it frequently and updating it. Gathering too little information at this stage obviously gives you a shove down the slippery slope to losing your business.
If we are going to make a mistake between having too little information versus too much, too much information is obviously the right amount.
Getting More Than EnoughIn my opinion, you need to have and use several questionnaires. You don’t want the client to become intimidated by the amount of information you really do need to gather, so it makes sense to gather the data one questionnaire at a time.
Lou Harvey suggests — and I concur — that your opening question should be, “What is most important to you?” The answers you receive here will give you clues on which of your multiple questionnaires should be deployed next.
We can handle the first two requirements of Rule 2310 by simply asking the client or prospect in a letter confirming the first appointment to bring in his brokerage, bank, annuity, 401(k) and life insurance statements.
After that, you need to gather the customer’s investment objectives and “such other information used or considered to be reasonable in making recommendations.” Naturally, this last catch-all category is where a rogue client with a spiny attorney will whack you. So let’s take these requirements one at a time.
You need a questionnaire on investment objectives. Based on my classification of over 600 questions sent in from advisors all over the country, your peers are asking for four kinds of information: vision, values, goals/objectives and fears.
Here are some questions you could include.