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.
Vision: These are questions designed to elicit how the client sees life in the future. In this writer’s opinion, this is probably the highest expression of what a person wants.o Imagine your best day ever. What are you doing? o Complete this sentence. “Now that I am (or when I am) financially independent….”o How do you want to be remembered when you have passed away?
Values: These questions elucidate the principles that help the client define what is right or wrong.o What is the absolutely most important thing in your life right now?o What does money mean to you?o What is the thing in your life that makes you happiest right now?
Goals/Objectives: A goal represents a state of affairs, often measurable, that a plan is designed to achieve. When achieved, the behaviors used to achieve it normally terminate. Example: Your client has been boosting contributions in order to catch up on 401(k) savings. When her balance is back on track, she can reduce the extra amount. o What are your most meaningful personal and financial goals for the next five years?o Why are those important? How will you get there?o At what age would you like to retire?o What have you seen in retirement that you wish to accomplish? What have you seen that you wish to avoid?o What three things have you not yet done in your life, but are determined to do? Travel, start a business, sail around the world…?
Fear: What does the client either not want to occur or want to be rid of?o What’s influencing you to change now?o What could sidetrack your dreams? (Caregiving? Tuition? Longevity? Illness? Premature death?)o What is your biggest financial concern, right now?o What could we do for you to allow you to sleep easier at night?
Everything ElseTo ensure that you have everything you need, I recommend you have at least these additional questionnaires:
Personal and Family Dynamics. Questions on family can give you a snapshot of family relations and especially obligations, which may require additional planning on your part. The personal questions, which should be asked of each decision maker, cover personal preferences and activities, both of which may also need to be factored into the planning process.
Investment Strategy. Here you pull apart the current portfolio and find out what the clients did, why they did it and especially whether they actually have an investment strategy (and if so, what it is). They should also include questions on the current state (or lack) of any financial planning they may have done or want to do.
Risk Management and the Legacy. This gives you an opportunity to discover what a client is doing to manage the various risks in his or her life.
Expectations. There are at least four dimensions to this category of questioning. You need to establish what the client expects from the advisor, the portfolio and the economy, as well as what the advisor (you) can expect from the client. This would probably be the last area I would explore, but because it could be the area of biggest “gotcha” for a rogue client gunning for an advisor, you do need to explore it.
All of this looks like too much information, correct? You got it.
Since I have, so to speak, run out of time, we will cover these other questionnaires next month.
Bill Good is chairman of Bill Good Marketing Systems in Draper, Utah; see www.billgood.com.