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10 Building Blocks for a Great Financial Planning Practice

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I have been working in the Australian financial services industry since 1969 and with financial advisors since 1983. In my global travels over the last six years I have met several advisors that I would describe as great. I now have a very clear opinion of what makes one advisor’s business successful and another’s a struggle. 

The fundamental difference is to set standards beyond what’s required by regulation. Regulation is a necessity, but merely abiding by its strictures is a minimal, insufficient attainment. Strive to work as if you are on the same side of the table as your clients. As one of my Australian colleagues argues: “Advise as if every client were your mother!”

So here are the 10 building blocks that I believe help make a great advisory practice. 

1.   Specialize
Become the expert on one client segment. Know the drivers, demographics, patterns and rules that relate to that segment and the experts you can work with. One young Australian advisor, originally from mainland China, has developed expertise in international tax and migration law. Another works with migrant dentists to the U.K. Whatever the segment (or niche, if you prefer), make it yours.

2.   Surround Yourself With People Better Than You
If you can afford it, hire them. If you can’t, read what they write and listen to what they say. Follow them on Twitter, blogs or through conferences. Be it technical, tax, investment, sales, communication or marketing talent, don’t settle for a person with second-rate skills. Surround yourself with the very best and the benefits will flow to your business. 

3.   Learn to Question and Listen
Every client’s needs and circumstances are unique. Most will struggle to describe them without help. The great planners talk with their clients regularly and discover their secrets and passions. My American colleagues call these “authentic conversations.” I heard a great description the other day: “Financial planning is no longer outsourced problem solving, it’s now about problems discovery, prioritization and collaborative resolution.”

4.   Communicate Consistently
Whether through your website, business cards or networks, communicate consistently about what sort of clients you are looking for and what you can do for them. Don’t work with those that don’t match your service offering.

5.   Never Treat Couples as a Single Entity
Not only is this legally risky for an advisor, but it is ethically wrong. Each partner is likely to have different goals, aspirations and probably risk tolerance. Respect for individuality is the heart of great financial advice.

6.   Run the Cash Flow Scenarios
Explore alternative behaviors. Help clients understand the consequences of working longer, spending differently, establishing alternative goals. Investment recommendations are the final outcome of this tradeoff process. Ultimately, clients are the ones who must make the choices.

7.   Offer Explicable Portfolios Suited to Client Needs
Clients must be able to give their informed consent to the risks in both their financial plan and their investments. Clients control the plan, the markets control the investments. Frame investment returns and volatility from the client’s perspective. Make sure they understand what they are getting into.  

8.   Reciprocity
You will receive much more than you will ever share in your professional and business life. Work to maximize what you can share. In return you will find that referred clients will emerge who are easy to manage and already have a view of the value you bring. This will build goodwill in your business. 

9.  Strive for Trust
Financial planners have a great opportunity to become recognized as trusted professionals, alongside teachers and doctors. I am not talking here of financial planning in just the better portfolio or tax sense, but the life-changing sense. Help clients to achieve life-planning, goal-setting behavioral changes that emancipate them, just as the two other professionals free their pupils and patients to have richer, more relevant and healthier lives. 

10. Address Client Risk
Test clients’ risk tolerance with the most accurate tools you can access (disclosure: I’m a cofounder of FinaMetrica, the risk tolerance testing company). Unlike, say, height or weight, there is no standard unit of measurement for risk tolerance, which is an enduring psychological trait rather than a temporary state.

The scientific discipline of psychometrics has developed to make personal traits such as risk tolerance measureable; a test can be completed in as little as 10 minutes and can accurately reveal so much about investors’ needs and preferences. This self-awareness empowers individuals to be more involved with decisions about their financial future.