As a new financial advisor 27 years ago, I lost a client I thought would be with me for life. I met him while he was mowing his lawn and over our three-year relationship, I’d sold him a number of products that fit his needs. One day, he told me he was leaving to consolidate all his accounts with a financial advisor at another firm.
I was shocked and asked him what I had done wrong. It turned out it was more what I hadn’t done. Unlike the other financial advisor, I hadn’t taken the time to fully understand his needs and his goals. It was a watershed moment for me. I realized I was not in the business of selling products. My job was to understand my clients’ goals and create a plan to help them to meet those goals.
Cultivating great human relationships around goals-based advice is critical to attracting and retaining clients. The financial crisis demonstrated the effectiveness of this approach. Clients who had developed a goals-based plan with their financial advisor stayed loyal. They saw the market turmoil as a bump in the road and part of a larger journey.
Goals-based advice creates the foundation for a deep relationship and changes the dynamic from beating a benchmark to achieving the clients’ objectives. It establishes a human-centered framework for long-term success and helps clients stay the course during volatile times. It also differentiates the financial advisor’s advice and solutions — the right mix of empathy and knowledge in helping them accomplish their goals.
Consistent, quality investment performance is a baseline expectation for clients. When clients see the value they’re receiving as more than investment performance, they’re more likely to separate the value of the relationship from investment returns.
Build an Enduring Relationship
According to J.D. Power, 38% of investors said their advisor developed a documented plan that incorporated risk tolerance and provided reasons for investment performance. Right now, there is a clear opportunity for financial advisors to differentiate in this area.
So how can financial advisors incorporate goals-based advice into their practices? Consider this three-stage journey: 1) understand the clients’ goals, 2) co-develop a long-term strategy and 3) stay connected and adjust goals as needed. J.D. Power’s research indicates that financial advisors who provide goals-based advice are more likely to see significantly higher client satisfaction and higher levels of new assets.
1. Understand the Client’s Goals
The initial stage of the process is hugely important. An initial “discovery” session helps the financial advisor uncover pertinent details, see the client from a holistic perspective and help them define their most important goals. Clients often articulate a problem they want solved.
Savvy financial advisors will focus on immediate needs and look for workable solutions, but also take the time to look deeper. Rolling over a 401(k) might be the issue on the table, but what about protecting retirement savings with insurance or saving for a child’s college education? There is a deep need to combine IQ with EQ to truly understand the dynamics at play.
Once goals have been set, document them for your reference and the client’s. This allows financial advisors and clients to regularly assess if they’re on track and reduce anxiety. This changes the dynamic of the relationship, from short-term performance of their assets to the importance of staying on track to fulfilling that goal.