Getting Clients to Share Their Secrets

Prospective clients are typically quite hesitant about revealing intimate financial details, and even clients who’ve signed on the dotted line are known to withhold information — and assets — from their financial advisors.

Getting prospects and clients to let their guard down is therefore an advisors’ biggest business challenge, and advisors who invest their time and money in the pitch du jour frequently come up short.

Holding costly seminars about municipal bonds, for example, is a classic strategy meant to appeal to wealthy prospects’ desire to avoid taxes.

But sooner or later some of these financially successful prospects of analytical bent come to suspect that they can obtain their cherished tax minimization through munis only by accepting lower returns at the outset.

Other advisors have caught onto the wave of baby boomer anxiety about Social Security, so they haul in prospects to discuss timing strategies and the like but are surprised to find out that the prospects often already have investment advisors to whom they are committed. They only want you, their new “Social Security advisor,” for Social Security advice.

How to inspire confidence and truly engage the client thus remains something of a big mystery for many a struggling advisor.

One quite unexpected potential solution to that challenge comes from the seemingly mundane province of the risk tolerance questionnaire — often treated merely as so much paperwork a compliance officer needs filled out and stuck in a file.

Yet FinaMetrica co-founder and director Paul Resnik, while quick to count the technical merits of his firm’s risk-profiling system long popular with financial planning advisor wonks like Harold Evensky, Michael Kitces and Bob Veres, insists the intimacy it establishes between advisor and client may be its greatest value-add.

“Our [system] requires intellectual engagement; it requires people to surrender their cynicism,” says Resnik, who is currently touring the U.S. from his Australia base to discuss investment suitability issues with advisors and investment managers.

Sitting down with Resnik, I quickly found my usual professional reserve give way to a more personal engagement — partly because the Irish-born Aussie is naturally disarming but perhaps as well because he had in fact “disarmed” me by having me take FinaMetrica’s 25-question, 15-minute survey prior to our meeting.

Knowing all about my financial personality and demographic details, he was able to “tease out” my unique combination of risk preferences and aversions — why I’m highly risk tolerant in some areas and quite cautious in others.

Actually, I did most of the talking and teasing out, as he sat and there and looked fascinated, which is exactly what he says advisors should want.

“It’s the 80-20 rule,” he says, meaning that an advisor should listen to the prospect for 80% of the time and chime in 20% of the time.

The survey “gives you rapport. It gives us shared experiences, a basis to start that conversation,” he says.

According to Resnik, that ability to develop an intimate bond with prospects is not a quality that inheres in the humdrum risk-tolerance test, of which he says “there are thousands…in the marketplace.”

Those quotidian questionnaires seek answers to three questions, he says: “What’s the time horizon for your investment? What’s your risk tolerance? What can you afford to lose?”

In quasi-mechanical fashion, “It’s ‘fill this in, here’s your portfolio.’ But that completely subverts the financial planning process,” Resnik protests.

“Most people on the holistic end [of the advisory business] don’t have the analytical tools to dismember, to atomize the results,” he adds.

“There’s your psychology — we need to figure out what that is; what risks you need to take to achieve your goals; we need to apply some form of stochastic modeling to find out how to achieve your goals, your capacity for loss; and whether you actually understand anything.”