Four Closings for Financial Advisors

When it comes to financial products, people hesitate even when the proposal is good for them.  It is a reasonable sort of caution, with reports of an uncertain market, scams, or simply bad service.  In the pursuit of what is good for them, people are wary of making a substantial commitment towards what may not necessarily be good for them.

The most difficult client for any financial advisor is the client who is highly educated in an unrelated field, but imagines he or she understands finance due to that high education.  Another subset is the client who has experience in some field of the finance industry, and extrapolates that experience into what he believes is relevant knowledge in insurance, which is risk mitigation and management.  All this is especially so for the mass affluent, and the high-net-worth client base.

Some clients are linear thinkers.  These are the process engineers, the IT professionals, the line managers – anybody in a profession that requires an understanding of a process to arrive at a conclusion from established facts, and copious data.  The problem here is that investing is not just about the apparent conclusions we derive from data, but also the feel of the market, and taking a position to take advantage, or mitigate it.  Investing involves dealing with the market, and the market is moved by sentiment.  The market is people, and people are often not rational.

When it comes to such people, the financial health review is the single most important document.  The FHR is the basis for a comprehensive proposal that explains the role of the product within the portfolio, the asset allocation process, the relationship with the client’s risk tolerance, and the proposed investment horizon for each product and asset class.  This may mean preparing one or two alternative proposals, because clients like this want options.  Just as their job requires a specific process, they want to be part of that process before they arrive at their decision, and they want their options to have that sense of control.  However, once people like this have committed, they see it through.  It is important, however, to give them annual updates, and when the market has significant movement.

Some clients are creative thinkers, the opposite.  These are the people who likely work in advertising, the entertainment industry, interior design – anything that involves a creative process to come up with products, and ideas.  The contention here is that investing is a science, as much as it involves understanding the psychology of the market.  When addressing such clients, it would be best not to inundate them with data, since they would likely switch off.

When it comes to this category of people, it is important to sell them a story.  You have to paint a visually enriching scenario, illustrating the point in a way they can relate to.  Telling him that the mean age of mortality is 88 years, and the age of retirement is 65 years, does not get the point across.  Giving him a scenario where his lifestyle standard is affected, and how it impacts his quality of life, with vivid examples, is far more effective.  This means you need to focus on his needs, his aspirations, and his dreams in the fact find, more than where he is now.  Whatever plan proposed must address the needs in the future in a manner that is subscribable and relatable from a sensate perspective. It is not about data-driven proposals, but one compelling narrative to illustrate the proposal.  Once they have bought into that vision, they tend to be committed over an extended period.

Some clients are complacent due to their preparations.  This would be most high-net-worth clients, and prospects.  They have assets in stocks, bonds, perhaps some insurance plans, and even another property.  They look at what they have, and project a linear growth without considering that their assets have a cost, liquidity issues, or currency exposure.  Many of these people are young professionals, such as doctors, lawyers, or owners of modest businesses.  They built themselves up based on their professional knowledge, and are convinced they know better.

It is important to perform a proper fact find that focuses on the current quality of life, and expected quality of life.  If these people want to maintain some semblance of the standards they are sued to, then they will often find themselves woefully inadequate in their estate and financial planning.  It is important to highlight to these people that not making a move is itself a risk, since it is predicated on the market maintaining itself ceteris paribus.  That is not going to happen.  Medical inflation alone is in double digits  Often, it is critical illness, and poor asset allocation, that affects them negatively, in the long run.  Once they have committed, much of that relationship is about keeping them focused on their own investment goals, every time there is some short-term turbulence in the market.

The final category of high-net-worth client is the over-cautious one.  They were likely, as is often the case, once someone with a high-risk tolerance.  They probably put significant sums in the market, or some form of multi-level marketing scheme, and treated investment more like speculation and gambling.  Inevitably, they got burned, and retreated into financial hermitage.  They are the flip side of the self-made professionals in the above example.

In such a case, it is important to consider the causes of their risk aversion, and address the misconceptions that arose.  For example, not investing, and not mitigating risk, is itself a huge risk.  They need to be appraised of dollar cost averaging, debt instruments such as bonds, and insurance policies – low-risk approaches to mitigate their irrational fear.  With such clients, you have begun a long process of negotiation where you present their needs, and propose a means to address them, and then address every objection they raise.  These are long-term clients, with needs that need to be addressed incrementally over an extended period of time.  They require extensive follow-up, and you need to be proactive in addressing their concerns.

In summary, there are no easy clients.  Once you have identified the trope, some require extensive preparation for closing, whereas others require more work in the follow-up, after the closing.  Ultimately, it is about excellence in service, and market knowledge.