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Financial Planning > Tax Planning

Why Advisors Fail to Land Hot Prospects

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You’ve got a crack at a multimillion-dollar account — a corporate retirement plan or a multigenerational high-net-worth family. You go in there with everything you’ve got. You lose the opportunity.

Sound familiar? It happens all the time, leaving disappointed advisors wondering in what way was their preparation inadequate.

“Did my explanation of the plan’s auto-enrollment feature fall flat? Did I not display enough knowledge of dynasty plans?”

According to negotiations expert Raphael Lapin, financial advisors are more apt to fail not because of inadequate substantive knowledge, which he stresses an advisor must possess, but because advisors lamentably don’t appreciate the difference between pitching and negotiating.

“Advisors are often lording their knowledge over people, proclaiming ‘This is why we’re the best,’” the Los Angeles-based, international consultant tells ThinkAdvisor.

“But people have an innate resistance to pitching and, immediately, their defensive walls go up. The more you shout [figuratively], the more they shut out,” he says.

Paradoxically, Lapin continues, a display of substantive knowledge can actually be alienating.

“When you’re trying to show your expertise, the first thing you need to do is to engage them in a dialogue—making sure you understand what their needs are, what their fears are. It’s not [the knowledge you display]; it’s what you can demonstrate you understand about the prospects even before offering any solution, so they say: ‘This guy understands us; maybe we should take his ideas seriously.”

A Harvard-trained negotiation specialist who also teaches at a Southern California law school, Lapin often sprinkles contemporary diplomatic foibles when elucidating negotiating principles.

In that regard, he decries what he regards as a fiasco in the West’s confrontation with Russia over Ukraine.

“You have to separate understanding from agreeing. The first step in negotiating is to really be able to immaculately understand the other party, without agreeing,” he says, adding that the U.S. tends to allow past experience with Russian expansionism during the Cold War to shape its expectations about Russia’s behavior, fueling “the West’s tendency to react before verifying and clarifying.”

But noting that Russia has not yielded to U.S. demands, Lapin warns financial advisors not to make that mistake with prospects — by understanding the difference between selling and negotiating.

“Selling and pitching is about me; negotiation and authentic persuasion and influence is about you.”

So rather than an “output” of your knowledge, advisors must focus nearly exclusively on input in that first meeting.

“What’s more important at the initial phase is gathering an input of information — what is called the information development stage, where I want to get as much information from the client as possible in terms of his needs, concerns, anxieties, priorities and values.”

Completely apart from the value of such data in crafting a financial plan lies its value in building a rapport with the prospect.

“Once he feels that you really understand him and are taking him seriously — only then will he be prepared to take your ideas seriously in terms of the solutions you can offer,” he says.

So it’s not a failure to explain to a corporate client how auto-enrollment can reduce administrative costs nor a lack of breadth in explaining the various kinds of trusts that can be used to pass tax-free wealth to heirs. Rather, it’s as simple as the failure to signal you care.

“Many times proposals are rejected because they’re offered prematurely — before sufficient information development has occurred and before the prospective client feels that his advisor really does understand him,” Lapin says.

Practically speaking, Lapin says advisors need to work on their communication skills, beginning with the ability to shut their mouths.

“You should be speaking less and he should be speaking more. You [achieve] that through probing questions and effective listening,” he says.

While this may seem overly passive to most advisors who see themselves as the experts, in truth, Lapin says, questioning is a rigorous process that is essential to drawing out what the prospect may be unable to articulate.

Another vital aspect of engaging the prospect is feeding back what you’ve learned.

“It’s one thing to understand, but it’s another thing to demonstrate that understanding,” he says. “I could understand you immaculately but that doesn’t mean you know I understand you.

“So you say: ‘If I understand you correctly, these are your needs, concerns, anxieties, timeline, etc. Is there anything I missed?’ If you give it back to them better than even they articulated it themselves, you can sense their relief: ‘Finally someone understands me; they’re not just trying to pitch their product to me.’”

Lapin stresses that the advisor should go through this engagement process in an authentic manner rather than simply following a checklist.

“When you are sitting with a prospective client, your mindset has to be one of constructive curiosity as opposed to self-centered conquest. Your mindset should be: ‘I really want to understand that person, where his mind is at, how does he see his future,’” Lapin suggests.

With this approach, the advisor must clearly understand that he is simultaneously working on two tracks: At the same time that he is negotiating an investment advisory engagement, he is also negotiating a new, personal relationship with an advisor the prospect has never worked with before. The advisor and prospect need to explore both these aspects explicitly.

So in addition to financial planning questions, the advisor should ask:

“What might be your fears be about working with a new company, a new advisor? Have you had this kind of significant change before? What were your experiences with that?” Lapin proposes.

“The more I [express those concerns], the more I become less threatening to him,” he says.

While advisors tend to neglect the relationship dimension of the negotiation, there remains room for improvement on the investment side as well, since advisors — seeing themselves as the experts — are apt to propose solutions without soliciting the prospect’s ideas.

“It’s the same as when you go to a restaurant and you get a menu,” Lapin says. “Together with the client we can develop a menu from which we can choose a path. ‘I’d like to hear some ideas you have.’ You generate four or five ideas and then [discuss] which…has the most potential — so they can feel ownership of the solution and a stake in the outcome.”

Lapin recognizes that advisors don’t easily yield their authority as the experts in the relationship.

“It’s part of advisors’ DNA, and that’s OK,” he says. “But if you’re doing things the same way you don’t grow. [Soliciting a prospect’s ideas] doesn’t mean you can’t guide him — you’re still offering solutions, but in a collaborative fashion.”

Once again, the negotiations expert draws an example of the failure of effective collaboration from the world of diplomacy, namely the drive by a large proportion of Scots to secede from the United Kingdom.

The outcome of Thursday’s vote on Scottish independence may well turn on the quite limited efforts to engage Scots creatively.  

“There was no real process in Scotland — there were only two options, yes or no,” the South African-born, British-educated negotiator says. “Had [Westminister] deployed an effective negotiation process, they may have developed some other creative yet feasible options less dramatic than complete secession, yet still meeting Scotland’s vital interests.” 

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