“Seek first to understand, then to be understood.”
Stephen Covey
7 Habits of Highly Effective People
In simple terms 'Listen'! If we do an analysis of our interactions with our clients, 9 out of 10 times we will have ended up speaking more rather than listening to our clients. Have we ever really listened to their dreams, fears and concerns?
Over the years, I have realized that most of us tend to be in love with ‘numbers’! Be it trying to assess client’s net worth or investment surplus through serious of questions on their portfolio holdings so that we can do a back of the envelope calculation of how much revenue can be generated from the client per annum. Or else we end up rattling the kind of returns that we managed to achieve for our other clients and show casing our knowledge on markets and economy by rambling on statistics and jargons like PE ratio, overvalued /undervalued markets, EPS, etc. Phew! Have you ever wondered whether your clients are really interested in these or do they even understand?
Let us for a moment forget about ‘numbers’ and start focusing on clients as an ‘individual’ like you and me. We shall also focus on ‘listening’ rather than ‘talking’. What kind of conversations can we have with the client wherein the client talks mostly and we listen.
To start with, we can try and find client’s family history and values by asking a few open- ended questions like ‘Where did you grow up’, ‘What was it like growing up’, ‘What did your parents teach about money when you were young’, ‘ What makes you tick’, ‘How has your work and career shaped up till date and which job did you enjoy doing most’, ‘What were the best financial decisions you made in the past’. These questions will help connect with clients deeply. Some of their stories you could also relate to in your life and share with them. This builds great empathy and understanding.
Some more questions on Life Balance focusing on their satisfaction levels [ on a 1 to 10 scale] in the areas of finances, family, leisure, learning, work , health, etc could help us get deeper perspectives and insights about the clients.
By making the client the focus of conversations, we can help them define their values and priorities in their life and hence define their life goals around it. We can also facilitate by providing resources/directions to achieve their qualitative goals. For example, if a client is interested in doing a project that is close to their heart during their weekends, we can research and refer them to appropriate organizations. Don’t you think when we have conversations like these, clients will automatically buy into the financial plan, since they defined their goals and priorities in life. Since you as an Advisor are putting their interest first and when they see that clearly, they will not hesitate to pay fees because they find value in what we do for them.
Apart from these, other key factors that drive client engagement levels higher is how we help them organize their finances and paperwork, review and assist them in recommending adequate life and health cover, identify their risk profile through scientific risk tolerance tools, adhere to an asset allocation model and portfolio diversification, systematic and disciplined investing, re-balancing portfolios once a year or two, recommend products that are cost efficient in terms of tax and transactions and more specifically guide them on cash flow management to ensure surplus money is invested every month that could help achieve their goals faster. Finally, when you present the numbers in terms of corpus to be accumulated for goals, you help them focus on breaking it up on a monthly basis by saving and investing towards achieving their goals.
Of course, there are many more ways we can help clients and add value. Just today, I read about a Pune advisor who charges 3% fees to his clients! He has focused on a niche segment of clients who have physical shares and help them convert into demat form and unlocked value for his clients in multiples to what they thought their stocks are worth! I remember doing this way back in 2003 for a single client and I had charged a monthly retainer fees to convert 150 stocks. The entire project took about 15 months to complete. Few of the blue chip stocks after splits and bonuses amounted to 20,000 to 30,000 shares! His net worth translated into multiples of crore post the conversion of shares into demat form! When you help people with simple though tedious tasks like these apart from our regular advice and planning services you will be able to charge fees.
I will like to end this article with a case study of one of my clients to validate the importance of charging ‘optimum’ fees. Too often, most of us end up charging very low fees for the kind of services that we provide clients. After spending a lot of time, energy and resources we may realize, that may be the fees that we charged the client was not ‘adequate’!
Last year, when I had sent the proposal for renewal of his contract, I had increased his fees by 150%. The client called up and asked for the rationale behind it; he also mentioned that if I can help him achieve 25% return in his portfolio, he wouldn’t mind paying the revised fees. Our conversation went something like this, ‘Sir, sure. I can explain this. I will like to state the rationale on why I have increased the fees through 10 key points:
1. In the previous year we had helped you to focus on reducing your outstanding loans to zero by early 2012 and help you complete the construction of your dream house without a home loan. We did this through intelligent cash flow management driven financial plan, since every quarter you had a defined amount as outflows to be paid for the construction of the house.
2. You were able to achieve these twin goals in 18 months despite a 50% uptick in your budget for the construction of the house.
3. Now that you have peace of mind in terms of debt free assets, it is time to focus on your current key goal of early retirement which involves smart management of your cash flows and investing in a disciplined and systematic manner.
4. Your spouse might want do something beyond being a home maker since your child has grown up and started going to school, she will have some spare time to do some meaningful work.
5. We will also explore new goals for you and your family and any changes in your retirement plan.
6. Towards this, I will be introducing the Financial Life Planning Process which will help you to define your values and priorities in life, re-define both of your goals, apply it in your day to day to life to achieve them.
7. As a part of this new process, I will be spending more time on your account and regularly following up with you to nudge you to achieve your goals.
8. One of the key action plans for this year will be to get you to invest regularly and also identify surplus money that is lying idle and re-invest into your goals.
9. We will also create additional surplus money for investing by evaluating your insurance portfolio and possibly surrender one or two high premium paying policies which you may not be able to afford to pay after you retire in the next 5 years or so.
10. Since you travel a lot throughout the year, it is important that we put these investing strategies in auto-pilot mode soon so that the power of compounding works in your favor.
To wrap up, our objective is to help you lead a ‘rich’ life that is meaningful and joyous. We believe the Financial Life Planning process and constant follow ups will help make it all happen.
The client paused for a minute and said, ‘Great! I will transfer the funds today. Let us go ahead’.
Have you noticed that I never spoke about ‘returns’? When you focus on goals and how you can help achieve them, clients are not too hung up on ‘returns’.
“And when you know the who, what, and why about your client, you do them the greatest service by designing plans that help them address those values. Doesn’t it make sense that the client would want to act on those ideas faster than they would act to buy a particular mutual fund or life insurance policy? That is because you have been able to frame the plan in terms of their life. They told you what’s important and you listened.”
Kris Arnzen
Values Based Planning, Journal of Financial Planning, March 1999
