Trust is still an issue in the financial services industry, and financial professional who walk into a meeting with brochures for products they’re already planning to recommend do not give investors confidence that the recomendations are tailored to their needs, Zahira Lehri, vice president of SunTrust Investment Services, said.
Lehri was part of a panel of advisors at the IRI Vision annual conference Monday that offered tips for managing the challenges with helping clients prepare for retirement.
Lehri said her success is based on finding common ground with clients and “building that trust to [get clients] to say, ‘She’s not here to sell me something; she’s here to know me.’”
Julie Casserly, president of JMC Wealth Management, said she’s working on building clients’ trust in her entire team. She assigns two advisors to each client.
“It’s not just quality of life” at stake for Casserly and her team, but a way to “build that trust as a culture inside our firm.”
Education is the beginning of trust, Greg Naples, senior vice president of the Naples Wealth Management Group, said. He walks clients through estate planning, living wills, life insurance, disability insurance, umbrella policies and personal liability, long-term care planning, Medigap and Medicare, Monte Carlo, Roth and traditional IRAs and 401(k)s to make sure clients understand and are comfortable with these topics.
“We haven’t even talked about investments yet,” he said, but that extended process gives Naples a chance to build rapport with clients “because there a lot of ‘aha’ moments” during that meeting.
To get clients to think about financial planning holistically, Casserly asks them to imagine where they see themselves in the future. She noted that when she asks clients where they see themselves in 20 years, “nobody ever talks about the money first. It’s always about their personal life, their family life; their career. I find out where all those pain points are” and help them plan to meet them.
When clients want to avoid talking about certain issues like long-term care planning, which IRI found is a product two-thirds of retirees don’t think they’ll ever need, Lehri recommended backing into the subject by talking about how a potential outcome might affect their quality of life. She described a client who had been caring for her father-in-law with Alzheimer’s for many years and struggled to meet his needs, but wasn’t interested in insurance planning.
When Lehri asked the client if she would also be her husband’s caregiver if he needed that kind of care, the client was more receptive to planning for long-term care needs.
When communicating with clients, Casserly pointed out that “people do not identify with percentages. They identify with dollars.” Expressing fees as a dollar amount based on clients’ accounts is a more effective way of justifying cost when it’s tied to their peace of mind.
“Every client finds their trigger point” that they’re willing to pay for peace of mind, “and everyone is different.”
Data visualization tools that show clients how their allocations to different risk classes translate to dollars can help clients understand their needs, Lehri added. Clients may tell their advisor they’re “‘ultra, ultra, ultra conservative,’” she said, “but when we actually show them on the plan” what their allocations mean for yield, “now we can actually navigate that conversation to the point where fees don’t matter, and all of the media noise that’s going on in the marketplace doesn’t mean anything when it comes to income.”
Casserly pointed out that client responses to risk questionnaires aren’t static. One of her clients completely changed his risk tolerance after going on anti-anxiety medication. She complements traditional risk questionnaires with an emotional behavior risk questionnaire, and found that “95% of the time the answers are completely different.”
“If you are managing portfolios based on just the traditional financial risk questionnaire, you’re going to have an ‘aha’ moment at some juncture with that client,” she said.
Naples uses guaranteed benefit annuities with about 95% of his clients, he said, noting that “most financial advisors shy away from” annuities because they’re complex. “People don’t want to touch something that they perceive as complicated.”
A LIMRA Secure Retirement Institute study found that advisors believe their No. 1 responsibility is preventing their clients from running out of money. Most advisors said guaranteed income products helped ease clients’ fears about running out of money, but there were significant concerns about the products. Forty percent said they made it difficult for them to properly manage their clients’ portfolios, and 30% said they were too complicated.
If they do purchase a guaranteed income product for their clients, advisors agreed less than a third of their clients’ assets should be used to do so, LIMRA found.
He added that clients, boomers in particular, have a prejudice against annuities, too. Millennials and Gen X are less likely to have that “built-in prejudice” their older peers have.
“You have to explain this is a new technology offered by the industry. It’s highly regulated in the proper fashion,” he said. “Once they get that, you can move on to the next thing.”
Naples added that providers have started taking features away from annuities rather than raising fees, so clients are paying the same for fewer features.
— Read Vanguard’s New Model for Retirement Spending in Low-Yield Market on ThinkAdvisor.